Dietrich, Diemo and Hauck, Achim (2010): Government interventions in banking crises: Assessing alternative schemes in a banking model of debt overhang.
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We evaluate policy measures to stop the fall in loan supply following a banking crisis. We apply a dynamic framework in which a debt overhang induces banks to curtail lending or to choose a fragile capital structure. Government assistance conditional on new banking activities, like on new lending or on debt and equity issues, allows banks to influence the scale of the assistance and to externalize risks, implying overinvestment or excessive risk taking or both. Assistance granted without reference to new activities, like establishing a bad bank, does not generate adverse incentives but may have higher fiscal costs.
|Item Type:||MPRA Paper|
|Original Title:||Government interventions in banking crises: Assessing alternative schemes in a banking model of debt overhang|
|Keywords:||Banking crisis; debt overhang; bank lending; capital structure|
|Subjects:||G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G0 - General > G01 - Financial Crises
|Depositing User:||Diemo Dietrich|
|Date Deposited:||23. Aug 2010 02:23|
|Last Modified:||16. Feb 2013 01:03|
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