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http://hdl.handle.net/10419/19894
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| Title: | | Banks without Parachutes : Competitive Effects of Government Bail-out Policies  |
| Authors: | | Hakenes, Hendrik Schnabel, Isabel |
| Issue Date: | | 2004 |
| Series/Report no.: | | Preprints of the Max Planck Institute for Research on Collective Goods 2004/12 |
| Abstract: | | The explicit or implicit protection of banks through government bail-out policies is a universal phenomenon. We analyze the competitive effects of such policies in two models with different degrees of transparency in the banking sector. Our main result is that the bail-out policy unambiguously leads to higher risk-taking at those banks that do not enjoy a bail-out guarantee. The reason is that the prospect of a bail-out induces the protected bank to expand, thereby intensifying competition in the deposit market and depressing other banks? margins. In contrast, the effects on the protected bank?s risk-taking and on welfare depend on the transparency of the banking sector. |
| Subjects: | | Government bail-out banking competition transparency "too big to fail" financial stability |
| JEL: | | L11 G28 G21 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Preprints of the Max Planck Institute for Research on Collective Goods
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