This paper examines the role of government guarantees to domestic banks in generating moral hazard in pre-crisis East Asian economies. We test for moral hazard among bank creditors by determining whether protected banks received more funds from creditors than otherwise identical banks that did...

Policymakers often use guarantees on bank liabilities to prevent or contain bank runs during systemic banking crises, but their success has been debated. Using a sample of 42 episodes of banking crises, this paper finds that blanket guarantees do help to reduce liquidity pressures on banks, but...

Does improving creditor coordination by strengthening CACs lead to efficiency gains in the functioning of sovereign bond markets? We address this question in a model featuring both debtor moral hazard and creditor coordination under incomplete information. Conditional on default, we characterize...

Debt mutualisation through Eurobonds has been proposed as a solution to the Euro crisis. Although this proposal found some support, it also attracted strong criticisms as it risks raising the spreads for strong countries, diluting legacy debt and promoting moral hazard by weak countries. Because...

The Federal Reserve was established in 1913 to be a lender of last resort. Paul Warburg, its principal architect had in mind that a U.S. central bank would follow Bagehot׳s strictures ‘to lend freely at a penalty rate’ in the face of a scramble for high powered money. Yet the Federal...

This paper contributes to the empirical literature on risk shifting. It proposes a method to find out whether risk shifting is present in the banking industry and, if so, what type. The type of risk shifting depends on the group of debt holders to whom risk is shifted. We apply this method to...

Systemic banking crises have placed enormous pressure on national governments to intervene. The empirical literature, however, is inconclusive on what an optimal bailout program should look like to mitigate the negative consequences of government interventions in the banking sector. We find...

This paper advances the study of Fiordelisi and Molyneux (2010) by examining the shareholder value efficiency and its determinants for a large sample of Japanese banks between 1999 and 2011. A new, specifically tailored measure of the Economic Value Added approach, based on the shadow price of...

Falling government and donor funding, which has traditionally supported microfinance, is followed by an expansion of financially self-sustainable Microfinance Institutions (MFIs). This development has raised the concern as to whether the social goals of traditional microfinance would be equally...

This study examines the efficiency of the financial sector in African countries. It aims to investigate if ìThe financial institutions are capable of distributing the economic resources efficiently. Empirical evidence supports a sound intermediation process and efficiency in the banking system...