Government guarantees of bank liabilities have a long-standing history and are now ubiquitous. We study a model where financial sophistication enhances banks’ ability to exploit government guarantees and fuels inefficient economic booms. Driven by financial engineering, bank rent extraction creates a disconnect between lending decisions and borrower repayment prospects: In equilibrium, banks over-lend and only break-even courtesy of trading book profit. Exploitability is affected not only by financial sophistication but also by regulation. Given the pattern for regulatory changes in the last few decades, we posit that the Great Recession, partly, reversed a Great Distortion.

中文翻译：

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超越乐观：低效经济繁荣的金融部门根源

政府对银行负债的担保有着悠久的历史，而且现在已经无处不在。我们研究了一个模型，其中金融复杂性增强了银行利用政府担保的能力，并推动了低效的经济繁荣。在金融工程的推动下，银行提取租金造成了贷款决策与借款人还款前景之间的脱节：在均衡状态下，银行过度放贷，只有通过交易账簿利润才能实现收支平衡。可利用性不仅受到金融复杂程度的影响，还受到监管的影响。鉴于过去几十年的监管变化模式，我们认为大衰退在一定程度上扭转了大扭曲。