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How Country and Safety-Net Characteristics Affect Bank Risk-Shifting

Armen Hovakimian, Edward Kane () and Luc Laeven ()

No 9322, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Risk-shifting occurs when creditors or guarantors are exposed to loss without receiving adequate compensation. This paper seeks to measure and compare how well authorities in 56 countries controlled bank risk shifting during the 1990s. Although significant risk shifting occurs on average, substantial variation exists in the effectiveness of risk control across countries. We find that the tendency for explicit deposit insurance to exacerbate risk shifting is tempered by incorporating loss-control features such as risk-sensitive premiums, coverage limits, and coinsurance. Introducing explicit deposit insurance has had adverse effects in environments that are low in political and economic freedom and high in corruption.

JEL-codes: G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-fin
Date: 2002-11
Note: CF
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Published as Hovakimian, Armen, Edward J. Kane and Luc Laeven. "How Country And Safety-Net Characteristics Affect Bank Risk-Shifting," Journal of Financial Services Research, 2003, v23(3,Jun), 177-204.

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Journal Article: How Country and Safety-Net Characteristics Affect Bank Risk-Shifting (2003) Downloads
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