Competition, risk-shifting, and public bail-out policies

Arbeitspapier

This paper empirically investigates the effect of government bail-out policies on banks outside the safety net. We construct a measure of bail-out perceptions by using rating information. From there, we construct the market shares of insured competitor banks for any given bank, and analyze the impact of this variable on banks' risk-taking behavior, using a large sample of banks from OECD countries. Our results suggest that government guarantees strongly increase the risk-taking of competitor banks. In contrast, there is no evidence that public guarantees increase the protected banks' risk-taking, except for banks that have outright public ownership. These results have important implications for the effects of the recent wave of bank bail-outs on banks' risk-taking behavior.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Preprints of the Max Planck Institute for Research on Collective Goods ; No. 2010,05

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation ; Enterprise Policy
• Subject: Government bail-out ; implicit and explicit government guarantees ; banking competition ; risk-taking

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gropp, Reint E. ; Hakenes, Hendrik ; Schnabel, Isabel
• Event: Veröffentlichung
• (who): Max Planck Institute for Research on Collective Goods
• (where): Bonn
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/32209
• Last update: 10.03.2025, 11:44 AM CET