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This paper studies the question to what extent premia for macroeconomic risks in banking are sufficient to avoid banking crises. We investigate a competitive banking system embedded in an overlapping generation model subject to repeated macroeconomic shocks. We show that even if banks fully incorporate macroeconomic risks in their pricing of loans, a banking system may enter bankruptcy with a probability of one. A major cause for this default is that risk premia of a competitive banking systemdoi:10.2139/ssrn.551583 fatcat:mypkxv6f4jaihnuuow33wrttz4