DOCUMENT
DOCUMENT
1/1
Do higher solvency ratios reduce the costs of bailing out insured banks?
journal contribution
posted on 2023-06-07, 14:02 authored by Robert EastwoodThe relationship between solvency constraints and bank behaviour in the presence of fixed rate deposit insurance is investigated. A rise in the minimum solvency ratio does not necessarily reduce the adverse consequences of moral hazard: bank efficiency may fall and expected bailout costs may rise. Such outcomes are possible even if credit risk is purely systemic. Similar results obtain in respect of level increases in bank capital, tangible or intangible, although in this case purely systemic risk excludes perverse outcomes.
History
Publication status
- Published
Journal
International Journal of Finance and EconomicsISSN
1099-1158External DOI
Issue
1Volume
9Page range
39-48Full text available
- Yes
Peer reviewed?
- Yes