Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/96902 
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper No. 4706
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper analyzes the effect of the removal of government guarantees on bank risk taking. We exploit the removal of guarantees for German Landesbanken which results in lower credit ratings, higher funding costs, and a loss in franchise value. This removal was announced in 2001, but Landesbanken were allowed to issue guaranteed bonds until 2005. We find that Landesbanken lend to riskier borrowers after 2001. This effect is most pronounced for Landesbanken with the highest expected decrease in franchise value. Landesbanken also significantly increased their off-balance sheet exposure to the global ABCP market. Our results provide implications for the debate on how to remove guarantees.
Subjects: 
government guarantees
exits
risk taking
franchise value
financial crisis
loans
JEL: 
G20
G21
G28
Document Type: 
Working Paper
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