Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support

Allen N. Berger, Christa H. S. Bouwman, Thomas Kick and Klaus Schaeck
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Allen N. Berger: University of SC and University of PA
Christa H. S. Bouwman: Case Western Reserve University and University of PA

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: We present the first study that jointly examines how regulatory interventions and capital support affect troubled banks' risk taking and liquidity creation. Using instrumental variables, we document that regulatory interventions and capital support both succeed in reducing bank risk taking. Regulatory interventions also trigger decreases in liquidity creation, pointing towards potential social costs of making troubled banks safer. These effects materialize quickly, persist in the long run, and are not offset by competitors' actions. Our findings provide novel insights into how supervision affects bank conduct and informs the debate about the design of bank bailouts.

JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2014-04
New Economics Papers: this item is included in nep-ban, nep-cba and nep-ger
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Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support (2011)
Working Paper: Bank risk taking and liquidity creation following regulatory interventions and capital support (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:upafin:14-07

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