Computing the (optimal) banking arrangement robust to crises: a measurement of efficiency gains from exposure to banking fragility

• Grant number: 24/19625-5
• Support Opportunities: Scholarships in Brazil - Scientific Initiation
• Start date: February 01, 2025
• End date: July 31, 2025
• Field of knowledge: Applied Social Sciences - Economics - Economic Theory
• Principal Investigator: Jefferson Donizeti Pereira Bertolai
• Grantee: Guilherme de Lima Bassinello
• Host Institution: Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto (FEARP). Universidade de São Paulo (USP). Ribeirão Preto , SP, Brazil

Abstract

This research project proposes to develop an application (and its analytical and numerical implementation - in Python language) of the recursive method of Bertolai et al. (2014) to the problem of designing the optimal banking arrangement robust to crises. To this end, we propose to study the optimization problem constructed from the second-best problem by adding a restriction that eliminates bank-run equilibria.The existence of a bank-run equilibrium in the game implied by the second-best solution, established in Bertolai et al. (2014), anticipates that the (optimal) crisis-robust banking arrangement makes a less efficient use of the aggregate savings. Therefore, the comparison of these two solutions provides a measurement of the efficiency gains made possible by the exposure of the banking system to banking fragility.This scientific initiation emerged in a very natural and organic way from the research activities carried out by the student during his journey at LEMC-FEARP/USP, a research laboratory created and coordinated by the advisor. It represents the follow-up (the highest point and conclusion) of the student's research experience in his (exceptional) undergraduate path.This is one of the rare opportunities in which a research topic at the frontier of knowledge can be developed into a scientific initiation, with great potential for scientific contribution: here we have the combination of a researcher specialized in the subject with an undergraduate student with high level human capital and a solid interest in the topic.