Banks Risk Taking and Creditors Bargaining Power
Yuval Heller (),
Sharon Peleg Lazar and
Alon Raviv ()
MPRA Paper from University Library of Munich, Germany
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)
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:91381
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