Government Guarantees, Transparency, and Bank Risk-Taking:
This paper presents a model of bank risk taking and government guarantees. Levered banks take excessive risk, as their actions are not fully priced at the margin by debt holders. The impact of government guarantees on bank risk taking depends critically on the portion of bank investors that can obse...
Gespeichert in:
| 1. Verfasser: | |
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| Format: | Elektronisch E-Book |
| Sprache: | English |
| Veröffentlicht: |
Washington, D.C
The World Bank
2017
|
| Schriftenreihe: | World Bank E-Library Archive
|
| Online-Zugang: | Volltext |
| Zusammenfassung: | This paper presents a model of bank risk taking and government guarantees. Levered banks take excessive risk, as their actions are not fully priced at the margin by debt holders. The impact of government guarantees on bank risk taking depends critically on the portion of bank investors that can observe bank behavior and hence price debt at the margin. Greater guarantees increase risk taking (moral hazard) when informed investors hold a sufficiently large fraction of liabilities. Otherwise, greater guarantees reduce risk taking by increasing the profits of the bank (franchise value effect). The results extend to the case in which information disclosure, and thus the portion of informed investors, is endogenous but costly. The model also shows that when bank capital is endogenous, public guarantees lead unequivocally to an increase in bank leverage and an associated increase in risk taking. The analysis points to a complex relationship between prudential policy and the institutional framework governing bank resolution and bailouts |
| Beschreibung: | 1 Online-Ressource (38 p) |
| DOI: | 10.1596/1813-9450-7971 |
Internformat
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| 520 | |a This paper presents a model of bank risk taking and government guarantees. Levered banks take excessive risk, as their actions are not fully priced at the margin by debt holders. The impact of government guarantees on bank risk taking depends critically on the portion of bank investors that can observe bank behavior and hence price debt at the margin. Greater guarantees increase risk taking (moral hazard) when informed investors hold a sufficiently large fraction of liabilities. Otherwise, greater guarantees reduce risk taking by increasing the profits of the bank (franchise value effect). The results extend to the case in which information disclosure, and thus the portion of informed investors, is endogenous but costly. The model also shows that when bank capital is endogenous, public guarantees lead unequivocally to an increase in bank leverage and an associated increase in risk taking. The analysis points to a complex relationship between prudential policy and the institutional framework governing bank resolution and bailouts | ||
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| 700 | 1 | |a Marquez, Robert |4 oth | |
| 700 | 1 | |a Cordella, Tito |4 oth | |
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| id | DE-604.BV048269236 |
| illustrated | Not Illustrated |
| index_date | 2024-07-03T20:00:00Z |
| indexdate | 2024-10-12T04:01:54Z |
| institution | BVB |
| language | English |
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| physical | 1 Online-Ressource (38 p) |
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| publishDate | 2017 |
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| publisher | The World Bank |
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| series2 | World Bank E-Library Archive |
| spellingShingle | Cordella, Tito Government Guarantees, Transparency, and Bank Risk-Taking |
| title | Government Guarantees, Transparency, and Bank Risk-Taking |
| title_auth | Government Guarantees, Transparency, and Bank Risk-Taking |
| title_exact_search | Government Guarantees, Transparency, and Bank Risk-Taking |
| title_exact_search_txtP | Government Guarantees, Transparency, and Bank Risk-Taking |
| title_full | Government Guarantees, Transparency, and Bank Risk-Taking Tito Cordella |
| title_fullStr | Government Guarantees, Transparency, and Bank Risk-Taking Tito Cordella |
| title_full_unstemmed | Government Guarantees, Transparency, and Bank Risk-Taking Tito Cordella |
| title_short | Government Guarantees, Transparency, and Bank Risk-Taking |
| title_sort | government guarantees transparency and bank risk taking |
| url | https://doi.org/10.1596/1813-9450-7971 |
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