Abolishing Public Guarantees in the Absence of Market Discipline

Isabel Schnabel and Tobias Körner

VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century from Verein für Socialpolitik / German Economic Association

Abstract: This paper shows that the abolition of state guarantees to publicly owned banks in Germany resulted in an increase in refinancing costs at German savings banks. Rather than being the result of increased market discipline, the increase in refinancing costs is shown to be driven by spillover effects from German Landesbanken who themselves had suffered from the abolition of guarantees and who spread their own cost increase through the public banking network. Higher refinancing costs and the resulting drop in bank charter values translated into higher risk-taking at German savings banks.

JEL-codes: G21 G28 H11 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (2)

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https://www.econstor.eu/bitstream/10419/65401/1/VfS_2012_pid_862.pdf (application/pdf)

Related works:
Working Paper: Abolishing Public Guarantees in the Absence of Market Discipline (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc12:65401

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