When Gambling for Resurrection is Too Risky

August 1, 2017

Preview Citation

Format: Chicago

Divya Kirti. When Gambling for Resurrection is Too Risky, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Rather than taking on more risk, US insurers hit hard by the crisis pulled back from risk taking, relative to insurers not hit as hard by the crisis. Capital requirements alone do not explain this risk reduction: insurers hit hard reduced risk within assets with identical regulatory treatment. State level US insurance regulation makes it unlikely this risk reduction was driven by moral suasion. Other financial institutions also reduce risk after large shocks: the same approach applied to banks yields similar results. My results suggest that, at least in some circumstances, franchise value can dominate, making gambling for resurrection too risky.

Subject: Banking, Bonds, Corporate bonds, Credit risk, Financial institutions, Financial regulation and supervision, Insurance, Insurance companies

Keywords: Banking, Bonds, Bonds insurer, Capital requirement, Corporate bonds, Credit risk, Fair value, Financial frictions, Franchise value, Insurance, Insurance companies, Interest-rate risk, Issued bond, Life insurance, Risk reduction, Risk shifting, WP, Yield to maturity

Publication Details

Pages:

59
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/180
Stock No:

WPIEA2017180
ISBN:

9781484312667
ISSN:

1018-5941

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