EconPapers    
Economics at your fingertips  
 

BAILOUTS, FRANCHISE VALUE AND MORAL HAZARD IN BANKING

Karlo Kauko

The Singapore Economic Review (SER), 2018, vol. 63, issue 03, 691-699

Abstract: Policy discussions are dominated by the view that governmental safety nets offered to banks cause moral hazard and encourage risk-taking. However, [Cordella, T and E Levy Yeyati (2003). Bank bailouts: moral hazard vs. value effect. Journal of Financial Intermediation, 12, 300–330.] proposed that government support offered during crises may increase bank franchise value, resulting in less risk-taking. This paper presents additional theoretical results on the franchise value effect. The franchise value effect can dominate over the moral hazard effect even when there are no specific crisis periods. The franchise value effect dominates if bank shareholders have a weak time preference and if the decision on the intensity of risk monitoring is a long-term choice.

Keywords: Franchise value; moral hazard; bailouts; banking (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590815501052
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:serxxx:v:63:y:2018:i:03:n:s0217590815501052

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590815501052

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().

 
Page updated 2020-11-11
Handle: RePEc:wsi:serxxx:v:63:y:2018:i:03:n:s0217590815501052