When bigger isn?t better: Bail outs and bank behaviour

Marcus Miller and Han Hao Li
Authors registered in the RePEc Author Service: Lei Zhang ()

No 8602, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The traditional theory of commercial banking explains maturity transformation and liquidity provision assuming no asymmetric information and no excess profits. It captures the possibility of bank runs and business cycle risk; but it ignores the moral hazard problems connected with risk-taking by large banks counting on state bail outs. In this paper market concentration and risk-shifting is incorporated in an analytically tractable fashion; and the modified framework is used to consider measures to restore competition and stability--including, in particular, those recommended for the UK by the Independent Commission on Banking (2011), chaired by Sir John Vickers.

Keywords: Money and banking; Seigniorage; Risk-taking; Bailouts; Regulation (search for similar items in EconPapers)
JEL-codes: E41 E58 G21 G28 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cis, nep-cta, nep-mac and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: When bigger isn’t better: bailouts and bank behaviour (2011)
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