A. Balbás, B. Balbás, Raquel Balbás, Antonio J. Heras
This paper deals with the optimal reinsurance problem and involves the goals of both insurer and reinsurer. An important novelty may be the incorporation of the background risk that the reinsurer uses in order to diversify (or hedge) the risk ceded by the insurer. Accordingly, general methods to prevent the reinsurer moral hazard must be extended, and a new constraint must be satisfied by the selected reinsurance contract, namely, "the reinsurer increment of risk must be lower than the contract premium". Simultaneously, since the contract must be attractive to the insurer too, "the contract premium must be lower than the insurer risk reduction". Integrating both ideas, "the contract premium must be higher than the reinsurer risk growth and lower than the insurer risk mitigation". Bearing in mind both requirements, that is, the protection against the moral hazard and the spread containing the contract premium, the optimal reinsurance problem is studied under very general conditions about the involved risk measures and premium principles, general solutions are provided, and a practical illustrative example is presented.
{"title":"Risk transference constraints in optimal reinsurance","authors":"A. Balbás, B. Balbás, Raquel Balbás, Antonio J. Heras","doi":"10.2139/ssrn.3824121","DOIUrl":"https://doi.org/10.2139/ssrn.3824121","url":null,"abstract":"This paper deals with the optimal reinsurance problem and involves the goals of both insurer and reinsurer. An important novelty may be the incorporation of the background risk that the reinsurer uses in order to diversify (or hedge) the risk ceded by the insurer. Accordingly, general methods to prevent the reinsurer moral hazard must be extended, and a new constraint must be satisfied by the selected reinsurance contract, namely, \"the reinsurer increment of risk must be lower than the contract premium\". Simultaneously, since the contract must be attractive to the insurer too, \"the contract premium must be lower than the insurer risk reduction\". Integrating both ideas, \"the contract premium must be higher than the reinsurer risk growth and lower than the insurer risk mitigation\". Bearing in mind both requirements, that is, the protection against the moral hazard and the spread containing the contract premium, the optimal reinsurance problem is studied under very general conditions about the involved risk measures and premium principles, general solutions are provided, and a practical illustrative example is presented.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114521767","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Twenty six percent of all payments and forty-seven percent of payments below $10 in the U.S. are made with cash. Using consumer transaction diary data, this article quantifies the burden from paying with cash by computing lower bounds on the number of currency notes and coins exchanged in each transaction. We then apply the same methodology to address a policy debate on whether to remove the penny coin from circulation in the U.S. By simulating a counterfactual economy, we quantify the effects of eliminating the penny on the burden of paying with cash.
{"title":"The Burden of Cash and the Penny Policy Debate","authors":"B. Prescott, Oz Shy","doi":"10.2139/ssrn.3822693","DOIUrl":"https://doi.org/10.2139/ssrn.3822693","url":null,"abstract":"Twenty six percent of all payments and forty-seven percent of payments below $10 in the U.S. are made with cash. Using consumer transaction diary data, this article quantifies the burden from paying with cash by computing lower bounds on the number of currency notes and coins exchanged in each transaction. We then apply the same methodology to address a policy debate on whether to remove the penny coin from circulation in the U.S. By simulating a counterfactual economy, we quantify the effects of eliminating the penny on the burden of paying with cash.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126314383","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Small banks are targets of a large number of cyberattacks. Using a sized-matched difference-in-differences design, we document that successful cyberattacks decrease branch deposit growth rates at small US banks. This decrease is due to bank-specific reputational damages that erode the trust of bank customers. The loss of trust results in a reallocation of deposits within local banking market to large banks. The reallocation is the consequence of a “flight-to-reputation” by depositors since it favours primarily large banks with a high reputation. We next document that cyberattacks affect the relationships between banks and customers in mortgage markets wherein hacked banks attract riskier applicants and are forced to lower their credit standards. Ultimately, our results imply that cybersecurity investments are crucial for banks to attract and retain customers and indicate that financial constraints in small banks can lead to local banking markets increasingly dominated by large banks. We highlight how this change in market structure can affect access to credit of small local businesses and impede the development of local economies.
{"title":"Cyberattacks on Small Banks and the Impact on Local Banking Markets","authors":"Fabian Gogolin, I. Lim, Francesco Vallascas","doi":"10.2139/ssrn.3823296","DOIUrl":"https://doi.org/10.2139/ssrn.3823296","url":null,"abstract":"Small banks are targets of a large number of cyberattacks. Using a sized-matched difference-in-differences design, we document that successful cyberattacks decrease branch deposit growth rates at small US banks. This decrease is due to bank-specific reputational damages that erode the trust of bank customers. The loss of trust results in a reallocation of deposits within local banking market to large banks. The reallocation is the consequence of a “flight-to-reputation” by depositors since it favours primarily large banks with a high reputation. We next document that cyberattacks affect the relationships between banks and customers in mortgage markets wherein hacked banks attract riskier applicants and are forced to lower their credit standards. Ultimately, our results imply that cybersecurity investments are crucial for banks to attract and retain customers and indicate that financial constraints in small banks can lead to local banking markets increasingly dominated by large banks. We highlight how this change in market structure can affect access to credit of small local businesses and impede the development of local economies.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134323265","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
What roles exist for public and private partnerships within the context of central bank digital currencies (CBDCs), in an increasingly digitalized global system? Do central bank digital currencies (CBDCs) serve as public goods rather than tools which should primarily remain within the realm and governance of private sector firms? What challenges or risks are presented through the use of CBDCs and how can such risks be mitigated through current existing structures - as well as models which have been propounded in relation to public – private partnerships? This paper aims to contribute to the literature on the topic through a consideration of several variants and models of CBDCs under which the public private partnership would function, namely the synthetic CBDC (sCBDC) and the two-tiered CBDC. Further, two other types of CBDCs, namely the wholesale CBDC and the retail CBDC will be distinguished - as well as the account based CBDC, which is contrasted to CBDCs based on digital tokens. Whilst concerns for privacy and security remain paramount and cannot be undermined, particularly from the perspectives of distributed ledger technologies (and blockchains – through which such platforms operate), such concerns need to be weighed against the need for identification since regulators will be better supported in their goals in enforcing the law, as well as identifying fraudulent operations, where sufficient identification procedures have been put in place.
{"title":"Central Bank Digital Currencies: Balancing Public-Private Partnerships","authors":"Marianne Ojo D Delaney PhD","doi":"10.2139/ssrn.3850116","DOIUrl":"https://doi.org/10.2139/ssrn.3850116","url":null,"abstract":"What roles exist for public and private partnerships within the context of central bank digital currencies (CBDCs), in an increasingly digitalized global system? Do central bank digital currencies (CBDCs) serve as public goods rather than tools which should primarily remain within the realm and governance of private sector firms? What challenges or risks are presented through the use of CBDCs and how can such risks be mitigated through current existing structures - as well as models which have been propounded in relation to public – private partnerships? This paper aims to contribute to the literature on the topic through a consideration of several variants and models of CBDCs under which the public private partnership would function, namely the synthetic CBDC (sCBDC) and the two-tiered CBDC. Further, two other types of CBDCs, namely the wholesale CBDC and the retail CBDC will be distinguished - as well as the account based CBDC, which is contrasted to CBDCs based on digital tokens. Whilst concerns for privacy and security remain paramount and cannot be undermined, particularly from the perspectives of distributed ledger technologies (and blockchains – through which such platforms operate), such concerns need to be weighed against the need for identification since regulators will be better supported in their goals in enforcing the law, as well as identifying fraudulent operations, where sufficient identification procedures have been put in place.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134196096","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article revisits the economics of insurance using insights from derivatives pricing and hedging. Applying this perspective, I emphasize the following insights applicable to insurance. First, I provide a valid justification for the use of arbitrage-free insurance premiums. This justification applies in both complete and incomplete markets. Second, I demonstrate the importance of diversifiable idiosyncratic risk for the determination of insurance premiums. And third, analyzing the insurance industry using the functional approach, I show the importance of derivatives and the synthetic construction of derivatives for reducing an insurance company's insolvency risk. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
{"title":"The Economics of Insurance: A Derivatives-Based Approach","authors":"R. Jarrow","doi":"10.2139/ssrn.3656469","DOIUrl":"https://doi.org/10.2139/ssrn.3656469","url":null,"abstract":"This article revisits the economics of insurance using insights from derivatives pricing and hedging. Applying this perspective, I emphasize the following insights applicable to insurance. First, I provide a valid justification for the use of arbitrage-free insurance premiums. This justification applies in both complete and incomplete markets. Second, I demonstrate the importance of diversifiable idiosyncratic risk for the determination of insurance premiums. And third, analyzing the insurance industry using the functional approach, I show the importance of derivatives and the synthetic construction of derivatives for reducing an insurance company's insolvency risk. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130455191","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Are disruptions of the mortgage market a consequence of financial imbalances accumulated in the past? In this paper, we study the effects of positive and negative credit supply (CS) shocks on subsequent household defaults on debt over the last four decades in U.S. states. We apply sign restrictions within a VAR framework to isolate state-level CS shocks, and identify that 1984 and 2004 were the years of systemic, countrywide, positive CS shocks whereas 1989 and 2009 brought systemic negative shocks. Further, by employing a difference-in-differences framework, we find that both positive and negative CS shocks lead to greater household defaults in the future if they also increase mortgage-to-income ratios. We show that the CS shock-induced (i) shifts of employment between the tradable and non-tradable sectors, (ii) changes in household income and (iii) in house prices facilitate the accumulation of default risks. Our results indicate that positive CS shocks occurred in 1984 did not raise household defaults by more in more exposed states compared to less exposed states because the shocks increased both future income and mortgage debt, while not affecting mortgage-to-income ratios. In contrast, the 1989, 2004 and 2009 CS shocks increased mortgage-to-income ratios in subsequent years, thereby raising debt delinquencies and household defaults. These results provide further empirical evidence to theories of endogenous credit cycles.
{"title":"Credit Supply Shocks and Household Defaults","authors":"M. Mamonov, A. Pestova","doi":"10.2139/ssrn.3829990","DOIUrl":"https://doi.org/10.2139/ssrn.3829990","url":null,"abstract":"Are disruptions of the mortgage market a consequence of financial imbalances accumulated in the past? In this paper, we study the effects of positive and negative credit supply (CS) shocks on subsequent household defaults on debt over the last four decades in U.S. states. We apply sign restrictions within a VAR framework to isolate state-level CS shocks, and identify that 1984 and 2004 were the years of systemic, countrywide, positive CS shocks whereas 1989 and 2009 brought systemic negative shocks. Further, by employing a difference-in-differences framework, we find that both positive and negative CS shocks lead to greater household defaults in the future if they also increase mortgage-to-income ratios. We show that the CS shock-induced (i) shifts of employment between the tradable and non-tradable sectors, (ii) changes in household income and (iii) in house prices facilitate the accumulation of default risks. Our results indicate that positive CS shocks occurred in 1984 did not raise household defaults by more in more exposed states compared to less exposed states because the shocks increased both future income and mortgage debt, while not affecting mortgage-to-income ratios. In contrast, the 1989, 2004 and 2009 CS shocks increased mortgage-to-income ratios in subsequent years, thereby raising debt delinquencies and household defaults. These results provide further empirical evidence to theories of endogenous credit cycles.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122172777","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using a comprehensive dataset collected by the Federal Reserve, I find that over one-third of corporate loans issued by US banks are fully guaranteed by legal entities separate from borrowing firms. Using an empirical strategy that accounts for time-varying firm and lender effects, I find that the existence of a third-party credit guarantee is negatively related to loan risk, loan rate, and loan delinquency. Third-party credit guarantees alleviate the effect of collateral constraints in credit market. Firms (particularly smaller firms) that experience a negative shock to their asset values are less likely to use collateral and more likely to use credit guarantees in new borrowings.
{"title":"Third-Party Credit Guarantees and the Cost of Debt: Evidence from Corporate Loans","authors":"M. Beyhaghi","doi":"10.2139/ssrn.3492106","DOIUrl":"https://doi.org/10.2139/ssrn.3492106","url":null,"abstract":"\u0000 Using a comprehensive dataset collected by the Federal Reserve, I find that over one-third of corporate loans issued by US banks are fully guaranteed by legal entities separate from borrowing firms. Using an empirical strategy that accounts for time-varying firm and lender effects, I find that the existence of a third-party credit guarantee is negatively related to loan risk, loan rate, and loan delinquency. Third-party credit guarantees alleviate the effect of collateral constraints in credit market. Firms (particularly smaller firms) that experience a negative shock to their asset values are less likely to use collateral and more likely to use credit guarantees in new borrowings.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128384923","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines the effect of foreign bank assets and presence on banking stability in the economies with strong and weak country-level corporate governance in Africa between 2006 and 2015. Employing a Prais-Winsten panel data model on 86 banks in about 30 African economies, the findings on how foreign bank assets and presence influence banking stability in strong and weak corporate governance economies under different regulatory regimes are reported for the first time in Africa. The initial findings show that foreign bank presence and assets promote banking stability. However, the positive effect of foreign bank assets and presence is enhanced in economies with strong country-level corporate governance, while the positive effect of foreign bank assets and presence is weakened in economies with weak country-level corporate governance. After introducing different regulatory variables (regimes), it is observed that the enhancing effect of foreign bank presence and assets on banking stability in the full sample and economies with strong and weak country level corporate governance systems is deepened or improved under loan loss provision regulation regime. However, under the private and public sector-led financial transparency regulations, the reducing effect of foreign bank presence and assets on banking stability in economies with weak corporate governance systems is further dampened. These findings show that the relationship between foreign bank presence and assets is deeply shaped by corporate governance systems and regulatory regimes in Africa. Hence, policymakers must build strong corporate governance and sound regulatory regimes to enhance how foreign bank operations promote banking stability.
{"title":"Foreign Bank Assets and Presence on Banking Stability in Africa: Does Strong and Weak Corporate Governance Systems under different Regulatory Regimes Matter?","authors":"B. Kusi, E. Agbloyor, S. Asongu, J. Abor","doi":"10.2139/ssrn.3815642","DOIUrl":"https://doi.org/10.2139/ssrn.3815642","url":null,"abstract":"This study examines the effect of foreign bank assets and presence on banking stability in the economies with strong and weak country-level corporate governance in Africa between 2006 and 2015. Employing a Prais-Winsten panel data model on 86 banks in about 30 African economies, the findings on how foreign bank assets and presence influence banking stability in strong and weak corporate governance economies under different regulatory regimes are reported for the first time in Africa. The initial findings show that foreign bank presence and assets promote banking stability. However, the positive effect of foreign bank assets and presence is enhanced in economies with strong country-level corporate governance, while the positive effect of foreign bank assets and presence is weakened in economies with weak country-level corporate governance. After introducing different regulatory variables (regimes), it is observed that the enhancing effect of foreign bank presence and assets on banking stability in the full sample and economies with strong and weak country level corporate governance systems is deepened or improved under loan loss provision regulation regime. However, under the private and public sector-led financial transparency regulations, the reducing effect of foreign bank presence and assets on banking stability in economies with weak corporate governance systems is further dampened. These findings show that the relationship between foreign bank presence and assets is deeply shaped by corporate governance systems and regulatory regimes in Africa. Hence, policymakers must build strong corporate governance and sound regulatory regimes to enhance how foreign bank operations promote banking stability.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-03-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130328669","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Shareholders are the residual claimants on the assets of a corporation. Creditors are fixed claimants whose interest lies in the solvency of the borrower. Consequently, shareholders are usually thought to have optimal incentives to maximise the value of the corporation.
The article challenges this common wisdom in banking and proposes to reform bank governance granting (some) ex-ante governance rights to bank creditors. This aims at fine-tuning bank governance and incumbent substantive regulation, in particular the resolution framework for distressed banks, and enhance the quality of decision-making of banks in terms of risk-taking. At the same time, the proposed reform should increase the ex-ante credibility of resolution.
The second part of the article operationalises this construct focusing on the specific case of the European Banking Union and discusses the design of the governance status of bail-inable creditors.
The analysis demonstrates how bail-inable creditors can correct for shareholders’ perverse incentives and make debt governance work in banking. The policy proposal advanced in the paper would complement substantive regulation and prudential oversight. The governance role of creditors has the potential to be particularly helpful in preventing disproportionate risk-taking decisions in good times, when regulatory and supervisory standards are lax and systemic risk piles-up.
{"title":"Getting Bank Governance Right - The Interplay between the Resolution Framework and the Role of Creditors, with an Application to EU Law","authors":"Edoardo D. Martino","doi":"10.2139/ssrn.3814700","DOIUrl":"https://doi.org/10.2139/ssrn.3814700","url":null,"abstract":"Shareholders are the residual claimants on the assets of a corporation. Creditors are fixed claimants whose interest lies in the solvency of the borrower. Consequently, shareholders are usually thought to have optimal incentives to maximise the value of the corporation.<br><br>The article challenges this common wisdom in banking and proposes to reform bank governance granting (some) ex-ante governance rights to bank creditors. This aims at fine-tuning bank governance and incumbent substantive regulation, in particular the resolution framework for distressed banks, and enhance the quality of decision-making of banks in terms of risk-taking. At the same time, the proposed reform should increase the ex-ante credibility of resolution.<br><br>The second part of the article operationalises this construct focusing on the specific case of the European Banking Union and discusses the design of the governance status of bail-inable creditors.<br><br>The analysis demonstrates how bail-inable creditors can correct for shareholders’ perverse incentives and make debt governance work in banking. The policy proposal advanced in the paper would complement substantive regulation and prudential oversight. The governance role of creditors has the potential to be particularly helpful in preventing disproportionate risk-taking decisions in good times, when regulatory and supervisory standards are lax and systemic risk piles-up.<br>","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-03-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129292910","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Valeriya Dinger, Lisardo Erman, Daniel Marcel te Kaat
In this paper, we revisit the question to what extent bank bailouts affect economic growth. We adopt a broad concept of bailouts, which includes both capital injections and liquidity support to the banking system, and employ an identification strategy that controls for the various dimensions of endogeneity of bailouts. We find that liquidity support has a significant positive real economic effect, while the effect of recapitalizations per se is not statistically significant. However, the positive impact of liquidity support is driven by crises where central bank liquidity injections are accompanied by recapitalizations of the banking system. Employing bank-level data, we provide evidence that this is the case because better capitalized banks and banks in significantly recapitalized systems are more likely to provide loans, thus raising aggregate-level real economic growth.
{"title":"Bank Bailouts and Economic Growth: Evidence from Cross-Country, Cross-Industry Data","authors":"Valeriya Dinger, Lisardo Erman, Daniel Marcel te Kaat","doi":"10.2139/ssrn.3814662","DOIUrl":"https://doi.org/10.2139/ssrn.3814662","url":null,"abstract":"In this paper, we revisit the question to what extent bank bailouts affect economic growth. We adopt a broad concept of bailouts, which includes both capital injections and liquidity support to the banking system, and employ an identification strategy that controls for the various dimensions of endogeneity of bailouts. We find that liquidity support has a significant positive real economic effect, while the effect of recapitalizations per se is not statistically significant. However, the positive impact of liquidity support is driven by crises where central bank liquidity injections are accompanied by recapitalizations of the banking system. Employing bank-level data, we provide evidence that this is the case because better capitalized banks and banks in significantly recapitalized systems are more likely to provide loans, thus raising aggregate-level real economic growth.","PeriodicalId":331807,"journal":{"name":"Banking & Insurance eJournal","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-03-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124780900","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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