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http://ssrn.com/abstract=1428784
 
 

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Competition, Risk-Shifting, and Public Bail-Out Policies


Reint Gropp


Goethe University Frankfurt; Centre for European Economic Research (ZEW); Goethe University Frankfurt - Department of Finance

Hendrik Hakenes


University of Bonn - Economic Science Area; Centre for Economic Policy Research (CEPR)

Isabel Schnabel


University of Mainz - Faculty of Law and Economics; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

June 17, 2009

Review of Financial Studies, Forthcoming
European Business School Research Paper No. 09-13

Abstract:     
This paper empirically investigates the effect of government bail-out policies on banks outside the safety net. We construct a measure of bail-out perceptions by using rating information. From there, we construct the market shares of insured competitor banks for any given bank, and analyze the impact of this variable on banks’ risk-taking behavior, using a large sample of banks from OECD countries. Our results suggest that government guarantees to some banks strongly increase the risk-taking of the competitor banks not protected by such guarantees. In contrast, there is no evidence that public guarantees increase the protected banks’ risk-taking. These results have important implications for the effects of the recent wave of bank bail-outs on banks’ risk-taking behavior.

Number of Pages in PDF File: 42

Keywords: government bail-out, implicit and explicit government guarantees, banking competition, risk-taking

JEL Classification: G21, G28, L53

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Date posted: July 8, 2009 ; Last revised: November 23, 2010

Suggested Citation

Gropp, Reint and Hakenes, Hendrik and Schnabel, Isabel, Competition, Risk-Shifting, and Public Bail-Out Policies (June 17, 2009). Review of Financial Studies, Forthcoming; European Business School Research Paper No. 09-13. Available at SSRN: http://ssrn.com/abstract=1428784 or http://dx.doi.org/10.2139/ssrn.1428784

Contact Information

Reint Gropp (Contact Author)
Goethe University Frankfurt ( email )
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany
Centre for European Economic Research (ZEW) ( email )
P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany
Goethe University Frankfurt - Department of Finance ( email )
House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany
Hendrik Hakenes
University of Bonn - Economic Science Area ( email )
Adenauerallee 24-42
D-53113 Bonn
Germany
HOME PAGE: http://www.finance.uni-bonn.de/institut/hakenes
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Isabel Schnabel
University of Mainz - Faculty of Law and Economics ( email )
D-55099 Mainz
Germany
+049 (0) 6131 39 24191 (Phone)
+049 (0) 6131 39 25588 (Fax)
HOME PAGE: http://www.financial.economics.uni-mainz.de
Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )
Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany
+49-228-9141665 (Phone)
+49-228-9141621 (Fax)
HOME PAGE: http://www.coll.mpg.de/team/page/isabel_schnabel

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