Dietrich, Diemo and Hauck, Achim (2010): Government interventions in banking crises: Assessing alternative schemes in a banking model of debt overhang.
Download (206kB) | Preview
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:||30. Dec 2015 19:09|
Acharya V V (2009) A theory of systemic risk and design of prudential bank regulation. J Financ Stab 5:224–255.
Aghion P, Bolton P, Fries S (1999) Optimal design of bank bailouts: The case of transition economies. J Inst Theor Econ 155:51–70.
Allen F, Gale D (2000) Financial contagion. J Polit Econ 108:1–33.
Calomiris CW (2008) A matched preferred stock plan for government assistance. http://www.voxeu.org/index.php?q=node/1683.
Dell’Ariccia G, Detragiache E, Rajan R(2008) The real effects of banking crises. J Financ Intermediation 17:89–112.
Demirguc-Kunt A, Detragiache E (2002) Does deposit insurance increase banking systemstability? An empirical investigation. J Monetary Econ 49:1373–1406.
Diamond DW (2001) Should banks be recapitalized? Fed Reserve Bank of Richmond Econ Quart 87:71–96.
Diamond DW, Rajan R (2000) A theory of bank capital. J Financ 55:2431–2465.
Diamond DW, Rajan R (2001) Liquidity risk, liquidity creation, and financial fragility: A theory of banking. J Polit Econ 109:287–327.
Diamond DW, Rajan R (2005) Liquidity shortages and banking crisis. J Financ 60:615–647.
Flannery MJ (2009) Stabilizing large financial institutions with contingent capital Certificates (October 6, 2009). Available at http://ssrn.com/abstract=1485689
Freixas X, Giannini C, Hoggarth G, Soussa F (2000) Lender of last resort: what have we learned since Bagehot? J Financ Serv Res 18:63–84.
Hart O, Zingales L (2009) A new capital regulation for large financial institutions. Discussion Paper 7298, Centre for Economic Policy Research CEPR, London.
Holmstrom B, Tirole J (1997) Financial intermediation, loanable funds, and the real sector. Quart J Econ 112:663–691.
Laeven L, Valencia F (2008) Systemic banking crises: A new database.Working Paper WP/08/224, International Monetary Fund, Washington.
Mitchell J (2001) Bad debts and the cleaning of banks’ balance sheets: An application to transition economies. J Financ Intermediation 10:1–27.
Myers SC (1977) Determinants of corporate borrowing. J Financ Econ 5:147–175.
Nier E, Baumann U (2006) Market discipline, disclosure and moral hazard in banking. J Financ Intermediation 3:332–361.
Panageas S (2010) Bailouts, the incentive to manage risk, and financial crises. J Financ Econ 95:296–311.
Panetta F, Faeh T, Grande G, Ho C, King M, Levy A, Signoretti FM, TabogaM, Zaghini A (2009) An assessment of financial sector rescue programmes. Questioni di Economia e Finanza (Occasional Paper) 47, Banca d’Italia, Rome.
Philippon T, Schnabl P (2009) Efficient recapitalization. Discussion Paper 7516, Centre for Economic Policy Research CEPR, London.
Peek J, Rosengren E (1995) The capital crunch: Neither a borrower nor a lender be. J Money Credit Bank 27:625–638.
Praet P, Nguyen G (2008) Overview of recent policy initiatives in response to the crisis. J Financ Stability 4:368–375.