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This Paper shows that bank closure policies suffer from a ‘too-many-to-fail’ problem: when the number of bank failures … is large, the regulator finds it ex-post optimal to bail out some or all failed banks, whereas when the number of bank …-ante standpoint. We formalize this time-inconsistency of bank regulation. We also argue that by allowing banks to purchase failed …
Persistent link: https://www.econbiz.de/10005136753
bank suffering from liquidity shocks, we find that the unregulated bank keeps too much liquidity and monitors too little. A … central bank can alleviate the liquidity problem, but induces moral hazard. Therefore, we introduce an additional authority … that is able to bail out the bank either by injecting capital at a fixed return or by receiving an equity claim. This …
Persistent link: https://www.econbiz.de/10009320403
. Using a model of a systemic bank suffering from liquidity shocks, we find that the unregulated bank keeps too much liquidity … induces moral hazard. Therefore, we introduce a fiscal authority that is able to bail out the bank by injecting capital. This … authority faces a trade-off: when it imposes strict bailout conditions, investment increases but moral hazard ensues. Milder …
Persistent link: https://www.econbiz.de/10008468710
We analyze government interventions to alleviate debt overhang among banks. Interventions generate two types of rents. Informational rents arise from opportunistic participation based on private information while macroeconomic rents arise from free riding. Minimizing informational rents is a...
Persistent link: https://www.econbiz.de/10008854493
In the recent theoretical literature on lending risk, the common pool problem in multi-bank relationships has been … credit-fie information on distressed lending relationships in Germany. In particular, it includes information on bank pools … bank pools increases the probability of workout success and that coordination costs are positively related to pool size. We …
Persistent link: https://www.econbiz.de/10005504452
bankrupt firm’s main creditor (a bank) to influence the auction outcome. Rules prevent the bank from bidding directly. However …, the bank often finances a bidder in the auction, relaxing liquidity constraints. We show that the optimal bid strategy for … a bank-bidder coalition mimics the monopolist sales price. In the region where the bank’s debt is impaired, this optimal …
Persistent link: https://www.econbiz.de/10005792429
An iconic model with high leverage and overvalued collateral assets is used to illustrate the amplification mechanism driving asset prices to ‘overshoot’ equilibrium when an asset bubble bursts - threatening widespread insolvency and what Richard Koo calls a ‘balance sheet recession’....
Persistent link: https://www.econbiz.de/10008528524
We analyse the coordination problem in multi-creditor relationships empirically, relying on a unique panel data set that contains detailed credit-file information on distressed lending relationships in Germany, including information on creditor pools, a legal institution aiming at coordinating...
Persistent link: https://www.econbiz.de/10005123994
We analyse how a firm allocates information rights across its multiple banks. By differentiating information disclosed, a firm prevents its banks from continuing projects (possibly unsound) solely in order to use their superior information and seize assets during the reorganization....
Persistent link: https://www.econbiz.de/10005136599
short-run; leverage requirements reduce default risk but may significantly reduce bank value; mispriced deposit insurance …
Persistent link: https://www.econbiz.de/10011165669