Resource title

Banks without Parachutes : Competitive Effects of Government Bail-out Policies

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Resource description

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 protected 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.

Resource author

Hendrik Hakenes, Isabel Schnabel

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/19894

Resource license

Adapt according to the presented license agreement and reference the original author.