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Banks lose – someone gains: Households’ unequal exposure to financial distress

Author

Listed:
  • Mendicino, Caterina
  • Nord, Lukas
  • Peruffo, Marcel

Abstract

Is the burden of distress in the banking sector shared equally among households, or is it distributed unevenly? Following the global financial crisis, the economic consequences of severe disruptions to the banking sector and the unequal impact of recessions have become a key concern of macroeconomic policy. This article examines how temporary banking sector losses affect households differently according to their income levels. The analysis reveals that low-income households bear most of the burden, while high-income households tend to be less adversely affected. While a fewhigh-income individuals exposed to bank dividends may face severe losses, those who are able to quickly adjust their portfolios may be able to take advantage of low asset prices, earn high returns going forward, and overall benefit from distress in the financial sector. JEL Classification: D31, E21, G01, G21

Suggested Citation

  • Mendicino, Caterina & Nord, Lukas & Peruffo, Marcel, 2024. "Banks lose – someone gains: Households’ unequal exposure to financial distress," Research Bulletin, European Central Bank, vol. 124.
    • Handle: RePEc:ecb:ecbrbu:2024:0124:
    Note: 1774743
    as

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    References listed on IDEAS

    as
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    4. Greg Kaplan & Benjamin Moll & Giovanni L. Violante, 2018. "Monetary Policy According to HANK," American Economic Review, American Economic Association, vol. 108(3), pages 697-743, March.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
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    7. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Chapter 1," MPRA Paper 17452, University Library of Munich, Germany.
    8. Matthew Baron & Emil Verner & Wei Xiong, 2021. "Banking Crises Without Panics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(1), pages 51-113.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Banking Crises; Consumption Dynamics; Financial Frictions; Household Heterogeneity; Incomplete Markets;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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