The Ring-Fencing Bonus

John Thanassoulis, Irem Erten and Ioana Neamtu

No 17625, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the impact of ring-fencing on bank risk using short-term repo rates. Exploiting confidential data on the near-universe of sterling-denominated repo transactions, we find compelling evidence that banking groups subject to ring-fencing are perceived to be safer; repo investors lend to ring-fenced groups at lower rates, controlling for bank characteristics and collateral risk. Ring-fenced groups charge more to supply liquidity. We show that these effects are driven by the ring fenced subsidiary; the other subsidiaries are not adversely impacted by ring fencing to any meaningful extent. We further document that the banking groups reduce their risk-taking after the imposition of the fence. Our paper suggests that structural reforms can have a significant beneficial impact on risk in the banking system.

Keywords: Ring-fencing (search for similar items in EconPapers)
JEL-codes: G12 G18 G21 (search for similar items in EconPapers)
Date: 2022-10
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP17625 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: The ring-fencing bonus (2023)
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:cpr:ceprdp:17625

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP17625

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().