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Government support, regulation, and risk taking in the banking sector

Luis Brandao-Marques, Ricardo Correa and Horacio Sapriza
Authors registered in the RePEc Author Service: Luis Brandao Marques ()

Journal of Banking & Finance, 2020, vol. 112, issue C

Abstract: 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 rated banks and find that government support is associated with more risk taking by banks. More importantly, we find that restricting banks’ range of activities ameliorates the link between government support and bank risk taking. We conclude that, in the presence of moral hazard induced by government support, reducing bank complexity strengthens market discipline.

Keywords: Bank risk; Market discipline; Government support; Bank regulation (search for similar items in EconPapers)
JEL-codes: G21 G28 H81 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:112:y:2020:i:c:s0378426618300153

DOI: 10.1016/j.jbankfin.2018.01.008

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