International Evidence on Government Support and Risk Taking in the Banking Sector

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 an...

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Main Author: Brandao-Marques, Luis
Other Authors: Correa, Ricardo, Sapriza, Horacio
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2013, 2013
Series:IMF Working Papers; Working Paper
Subjects:
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Collection: International Monetary Fund - Collection details see MPG.ReNa
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
Physical Description:36 p.
ISBN:1484309340
9781484309346