Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79960
Authors: 
Hott, Christian
Year of Publication: 
2013
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2013: Wettbewerbspolitik und Regulierung in einer globalen Wirtschaftsordnung - Session: Leverage D21-V1
Abstract: 
This paper examines the impact of implicit guarantees and capital regulations on the behavior of a bank and on the expected losses for its depositors. I show that implicit guarantees increase the incentives of the bank to enhance leverage and/or risk taking and that this leads to higher expected losses for its depositors. To reduce the adverse effects of moral hazard, policy measures have to be taken. However, a simple leverage ratio is likely to increase expected losses further and risk adjusted capital requirements do not necessarily affect highly leveraged banks with very low risk assets. A combination of both requirements can be successful. Positive long-term effects can be achieved by a reduction of moral hazard and informational imperfections. However, it is difficult to achieve these reductions and potentially severe short-term effects have to be taken into account.
JEL: 
G18
G21
G32
Document Type: 
Conference Paper

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