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|Title:||Banks without Parachutes : Competitive Effects of Government Bail-out Policies |
|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.|
"too big to fail"
|Document Type:||Working Paper|
|Appears in Collections:||Preprints of the Max Planck Institute for Research on Collective Goods|
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