The present study investigates theoretically the lending responses of government-owned and private banks in the event of unexpected financial shocks. Our model predicts that public banks provide more loans to the real sector during times of crisis, compared to private banks which cut down on...

The current research on credit risk is primarily focused on modelling default probabilities. Recovery rates are often treated as an afterthought; they are modelled independently, in many cases they are even assumed to be constant. This despite their pronounced effect on the tail of the loss...

Gemäß den im Juni 2004 durch den Baseler Ausschuss endgültig verabschiedeten Kapitalstandards (Basel II) sind Kredite in Höhe des so genannten unerwarteten Verlusts mit Eigenkapital zu unterlegen. Für erwartete Verluste hat das jeweilige Kreditinstitut Rückstellungen zu bilden, wobei hier...

This paper analyses various approaches to dealing with problematic assets of the banking sector. These approaches include the establishment of an asset management company, capital injection and sale of the bank, purchase and assumption transactions, liquidation or bridge bank. All these...

We examine the pervasive view that “equity is expensive,” which leads to claims that high capital requirements are costly and would affect credit markets adversely. We find that arguments made to support this view are either fallacious, irrelevant, or very weak. For example, the return on...

Federal Housing Administration (FHA) insurance has doubled over the past two years and is projected to redouble to $1.5 trillion over the next five. Despite clear signs of strain in the FHA's Mutual Mortgage Insurance Fund, a recent actuarial review indicates that the FHA will not need any form...

While it is recognized that the high degree of leverage used by financial institutions creates systemic risks and other negative externalities, many argue that financial institutions must rely on extensive debt financing since equity financing is "expensive." Some of the reasons debt is...

Public loan guarantees and guarantee banks are important instruments to reduce credit rationing due to information asymmetries, and thus to ease the financing of small and medium-sized enterprises. The present paper examines the effectiveness of these measures in the economically underdeveloped...

In Asia, government-supported housing agencies have played a constructive role in the development of domestic residential mortgage and bond markets. Several agencies have increased their overall market presence in recent years by expanding their activities and have accepted a larger share of the...