Banks Risk Taking and Creditors Bargaining Power

Yuval Heller, Sharon Peleg Lazar and Alon Raviv
Authors registered in the RePEc Author Service: Sharon Peleg-Lazar (srpeleg@gmail.com)

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze the influence of unsecured debt (subdebt) on risk-shifting in banks whose assets are risky debt claims. We assume that the stockholders and subdebt-holders jointly decide on risk-shifting. We show that replacing part of the stock with subdebt: (1) leads to fewer risk-shifting events, but can lead to higher levels of risk, depending on the relative bargaining power, (2) does not change the level of risk-shifting when side payments are possible, and (3) may yield the surprising result that risk-shifting increases with tighter regulatory control.

Keywords: Risk-taking; asset risk; financial institutions; stress test; leverage; bargaining (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2019-01-10
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://mpra.ub.uni-muenchen.de/91381/1/MPRA_paper_91381.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/102765/1/MPRA_paper_102765.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/91403/1/MPRA_paper_91403.pdf revised version (application/pdf)

Related works:
Journal Article: Banks’ risk taking and creditors’ bargaining power (2022)
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