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Bank risk taking and liquidity creation following regulatory interventions and capital support

Author

Listed:
  • Berger, A.N.
  • Bouwman, C.H.S.
  • Kick, T.
  • Schaeck, K.

Abstract

We present the first study that jointly examines how regulatory interventions and capital support affect troubled banks' risk taking and liquidity creation. Using instrumental variables, we document that regulatory interventions and capital support both succeed in reducing bank risk taking. Regulatory interventions also trigger decreases in liquidity creation, pointing towards potential social costs of making troubled banks safer. These effects materialize quickly, persist in the long run, and are not offset by competitors' actions. Our findings provide novel insights into how supervision affects bank conduct and informs the debate about the design of bank bailouts.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Berger, A.N. & Bouwman, C.H.S. & Kick, T. & Schaeck, K., 2011. "Bank risk taking and liquidity creation following regulatory interventions and capital support," Discussion Paper 2011-088, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:097f5b56-e3b3-4d8d-b7d6-e60bf66481d9
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    Keywords

    risk taking; liquidity creation; bank distress; regulatory interventions; capital support;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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