Tunneling Money through Related-Party Lending

Gudrun Johnsen

Chapter Chapter 11 in Bringing Down the Banking System, 2014, pp 119-136 from Palgrave Macmillan

Abstract: Abstract Every bank has a certain level of moral hazard. When banks take on big risks, shareholders and employees, who are incentivized through cash bonuses, benefit from the if the results are positive. If market circumstances are unfavorable—even if fraudulent behavior has been practiced within the bank—the shareholder only bears part of the loss. The rest of the loss from the risk taking is borne by creditors, bondholders, uninsured deposit holders. In the case of systemically important institutions it is the public that picks up the tab. This is commonly referred to as privatization of gains and socialization of losses.1

Keywords: Credit Risk; Foreign Currency; Credit Default Swap; Loan Portfolio; Related Party (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-34735-0_11

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DOI: 10.1057/9781137347350_11

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