 COVID-19, bank risk, and capital regulation: The aggregate shock and social distancingWen-Chung Guo and Ping-Lun Tseng The Quarterly Review of Economics and Finance, 2023, vol. 92, issue C, 155-173 Abstract: In this study, we introduce a novel spatial framework to examine the impact of the aggregate shock and social distancing policies stemming from the COVID-19 pandemic on banks' incentives to monitor entrepreneurs. Our findings reveal that banks raise their loan rates to compensate for losses caused by the aggregate shock, which, in turn, enhances their monitoring efforts. However, the default probability still rises. The government's expansionary monetary policy, implemented in response to the COVID-19 crisis, can help mitigate these effects. Additionally, social distancing measures have led to either increased customer service or higher preparation costs for entrepreneurs seeking loans, both of which ultimately benefit the banks' monitoring efforts. We further explore social welfare analysis, the role of capital regulation, and several other relevant extensions. Keywords: COVID-19; Bank monitoring efforts; Aggregate shock; Social distancing; Capital regulation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:92:y:2023:i:c:p:155-173 DOI: 10.1016/j.qref.2023.09.004 Access Statistics for this article The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty More articles in The Quarterly Review of Economics and Finance from Elsevier |
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