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We present a model where bank assets are a portfolio of risky debt claims and analyze stockholders' risk …-taking behavior while considering the strategic interaction between debtors and creditors. We find that: (1) as the leverage of a bank … increases, risk shifting by borrowers increases, even if their leverage is unchanged (zombie lending). (2) While the literature …
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Financial safety nets are incomplete social contracts that assign responsibility to various economic sectors for preventing, detecting, and paying for potentially crippling losses at financial institutions. This paper uses the theories of incomplete contracts and sequential bargaining to...
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Financial safety nets are incomplete social contracts that assign responsibility to various economic sectors for preventing, detecting, and paying for potentially crippling losses at financial institutions. This paper uses the theories of incomplete contracts and sequential bargaining to...
Persistent link: https://www.econbiz.de/10012465955