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SUMMARY:How to discipline financial markets: reputation is not enough - Ma
 ria Bigoni (University of Bologna) 
DTSTART:20240125T123000Z
DTEND:20240125T133000Z
UID:TALK205747@talks.cam.ac.uk
CONTACT:Cerf Admin
DESCRIPTION:Historically\, shocks originating in the financial sector ofte
 n spilled over into the real sector with dramatic consequences. We study i
 n the lab how interventions targeting disclosure and capital requirements 
 of financial intermediaries can reduce insolvencies or prevent their\nnega
 tive effects from propagating to the broader economy. In our two-sector ec
 onomy\, consumers and producers can fund financial intermediaries\, who i
 n turn provide them with\nliquidity to settle trades. However\, intermedia
 ries may undertake risky investments and become insolvent\, which depresse
 s real economic activity. In the experiment\, insolvencies were frequent. 
 As a consequence\, consumers and producers often refused to fund intermedi
 aries\, which lowered the trade volume. Imposing the disclosure of risky i
 nvestments did not reduce risk-taking and insolvencies. Instead\, imposing
  capital requirements prevented insolvencies from disrupting real economic
  activity\, thus boosting financial intermediation and trade.
LOCATION:W4.03
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