Wealth inequality and bank failure: A cross-country simulation analysis

Abstract Assuming potential borrowers arrive randomly and sequentially at the bank, and the fair value assets change with the economy's state, we show, by extensive simulation, that in countries with a high level of wealth inequality, an increment in the upper bound of the wealth distribution may increase the probability of bank failure; Also, the average total amount of loans and the average net income of the bank increase. If wealth inequality is low and a bank has low screening capacity, then the probability of bank failure increases. This is enhanced when the bank adopts a higher level of perceived risk.