Bank capital forbearance and serial gambling

Saved in:

Authors and Corporations:

Martynova, Natalya (Author), Perotti, Enrico (Author), Suárez, Javier (Author)

Other Authors:

Perotti, Enrico [Author] • Suárez, Javier [Author]

Type of Resource:

E-Book

Language:

English

published:

Frankfurt am Main Deutsche Bundesbank [2020]

Series:

Subjects:

bank supervision

bank recapitalization

forbearance

Graue Literatur

Source:

Verbunddaten SWB
Lizenzfreie Online-Ressourcen

ISBN:

9783957297822

Description
Summary:	We analyze the strategic interaction between undercapitalized banks and a supervisor who may intervene by preventive recapitalization. Supervisory forbearance emerges because political and fiscal costs undermine supervisors' commitment to intervene. When supervisors have lower credibility, banks' incentives to voluntary recapitalize are lower and supervisors may end up intervening more. Importantly, when intervention capacity is constrained (e.g. for fiscal reasons), private recapitalization decisions become strategic complements, producing equilibria with extremely high forbearance and high systemic costs. Anticipating forbearance in response to diffuse undercapitalization, banks may ex ante choose more correlated risks, a form of "serial gambling" undermining the supervisory response.
Physical Description:	1 Online-Ressource (circa 57 Seiten); Illustrationen
ISBN:	9783957297822