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Theory suggests that government aid to banks may either reduce or increase systemic risk. We are the first to address this issue empirically, analyzing the Troubled Assets Relief Program (TARP). Analysis suggests that TARP significantly reduced contributions to systemic risk, particularly for...
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Conventional wisdom in banking argues that diversification tends to reduce bank risk and improve performance, but the recent financial crisis suggests that aggressive diversification strategies may have resulted in increased risk taking and poor performance. This paper addresses this important...
Persistent link: https://www.econbiz.de/10013139765
Prudential bank supervision is designed to enhance financial stability, but we are unaware of research linking this supervision to financial system risk. In particular, there are no prior findings on how supervisory enforcement actions (EAs) – major tools of supervisors – affect systemic...
Persistent link: https://www.econbiz.de/10012822760
Liquidity creation is one of banks' raisons d'être. But what happens to liquidity creation and risk taking when a bank is identified as distressed by regulatory bodies and subjected to regulatory interventions and/or receives capital injections? What are the long-run effects of such...
Persistent link: https://www.econbiz.de/10012989246
We model dynamic bank capital structure under three optimally-designed regulatory regimes dealing with potential default { bailout, where government provides capital; bail-in, using private-sector funds; and no regulatory intervention, allowing failure. Only under optimally designed bail-in do...
Persistent link: https://www.econbiz.de/10012852290
We examine the effects of competition on bank risk. We find strong evidence that interstate banking deregulation — which generally increases bank competition — is associated with lower bank risk and some evidence intrastate branching increases bank risk. Further, interstate banking reduces...
Persistent link: https://www.econbiz.de/10012864308
Despite ample research demonstrating many consequences of bank geographic deregulation, the bank capital determinants literature has not directly tested the effects of this deregulation. This paper fills this important research gap. We find strong evidence that geographic deregulation...
Persistent link: https://www.econbiz.de/10012852303
We study the effects of regulatory interventions and capital support (bailouts) on banks' liquidity creation. We rely on instrumental variables to deal with possible endogeneity concerns. Our key findings, which are based on a unique supervisory German dataset, are that regulatory interventions...
Persistent link: https://www.econbiz.de/10012975844