Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94105
Authors: 
Hakenes, Hendrik
Schnabel, Isabel
Year of Publication: 
2004
Series/Report no.: 
SFB/TR 15 Discussion Paper 8
Abstract: 
Lecture on the first SFB/TR 15 meeting, Gummersbach, July, 18 - 20, 2004: 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 rotected 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
opacity
'too big to fail'
financial stability
JEL: 
G21
G28
L11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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