Bank capital forbearance and serial gambling

Beschreibung

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.
steht auch als elektronisches Dokument zur Verfügung (ISBN 978–3–95729–782–2)

Autor*in

Natalya Martynova

Themen in »Bank capital forbearance and serial gambling«

Bankenaufsicht Bankkapital Rekapitalisierung

Stimmen zu »Bank capital forbearance and serial gambling«

Details

Link teilen