International Evidence on Government Support and Risk Taking in the Banking Sector
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Summary:
Government support to banks through the provision of explicit or implicit guarantees affects the willingness of banks to take on risk by reducing market discipline or by increasing charter value. We use an international sample of bank data and government support to banks for the periods 2003-2004 and 2009-2010. We find that more government support is associated with more risk taking by banks, especially during the financial crisis (2009-10). We also find that restricting banks' range of activities ameliorates the moral hazard problem. We conclude that strengthening market discipline in the banking sector is needed to address this moral hazard problem.
Series:
Working Paper No. 2013/094
Subject:
Bank deposits Banking Deposit insurance Deposit rates Financial crises Financial services Inflation Loan loss provisions Prices
English
Publication Date:
May 2, 2013
ISBN/ISSN:
9781484309346/1018-5941
Stock No:
WPIEA2013094
Pages:
36
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