Government interventions in banking crises: effects of alternative schemes on bank lending and risk taking

Dietrich, D. and Hauck, A. ORCID: 0000-0002-6949-6732, 2012. Government interventions in banking crises: effects of alternative schemes on bank lending and risk taking. Scottish Journal of Political Economy, 59 (2), pp. 133-161. ISSN 0036-9292

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Abstract

We analyse the effects of policy measures to stop the fall in loan supply following a banking crisis. We apply a dynamic framework in which a debt overhang induces banks to curtail lending or choose a fragile capital structure. Government assistance conditional on new banking activities, like on new lending or on debt and equity issues, allow banks to influence the scale of assistance and externalise risks, implying overinvestment or excessive risk taking or both. Assistance without reference to new activities, like granting lump sum transfers or establish-ing bad banks, does not generate adverse incentives, but may have higher fiscal costs.

Item Type: Journal article
Alternative Title: Government interventions in banking crises: assessing alternative schemes in a banking model of debt overhang
Publication Title: Scottish Journal of Political Economy
Creators: Dietrich, D. and Hauck, A.
Publisher: Wiley-Blackwell on behalf of the Scottish Economic Society
Date: 2012
Volume: 59
Number: 2
ISSN: 0036-9292
Identifiers:
NumberType
10.1111/j.1467-9485.2011.00573.xDOI
Divisions: Schools > Nottingham Business School
Depositing User: Jonathan Gallacher
Date Added: 22 Feb 2019 09:46
Last Modified: 22 Feb 2019 09:46
URI: http://irep.ntu.ac.uk/id/eprint/35793

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