Abstract

http://ssrn.com/abstract=1908102
 
 

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Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support


Allen N. Berger


University of South Carolina - Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Christa H. S. Bouwman


Texas A&M University; Wharton Financial Institutions Center

Thomas K. Kick


Deutsche Bundesbank

Klaus Schaeck


University of Wales - Bangor Business School

April 14, 2014


Abstract:     
We present the first study that jointly examines how regulatory interventions and capital support affect troubled banks’ risk taking and liquidity creation. Using instrumental variables, we document that regulatory interventions and capital support both succeed in reducing bank risk taking. Regulatory interventions also trigger decreases in liquidity creation, pointing towards potential social costs of making troubled banks safer. These effects materialize quickly, persist in the long run, and are not offset by competitors’ actions. Our findings provide novel insights into how supervision affects bank conduct and informs the debate about the design of bank bailouts.

Number of Pages in PDF File: 45

Keywords: risk taking, liquidity creation, bank distress, regulatory interventions, capital support, bailouts

JEL Classification: G21, G28

working papers series


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Date posted: August 11, 2011 ; Last revised: April 26, 2014

Suggested Citation

Berger, Allen N. and Bouwman, Christa H. S. and Kick, Thomas K. and Schaeck, Klaus, Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support (April 14, 2014). Available at SSRN: http://ssrn.com/abstract=1908102 or http://dx.doi.org/10.2139/ssrn.1908102

Contact Information

Allen N. Berger
University of South Carolina - Moore School of Business ( email )
1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)
Wharton Financial Institutions Center
Philadelphia, PA 19104-6367
United States
European Banking Center
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Christa H. S. Bouwman
Texas A&M University ( email )
360H Wehner
College Station, TX 77843-4218
United States
979-845-3514 (Phone)
979-845-3514 (Fax)
HOME PAGE: http://people.tamu.edu/~cbouwman/
Wharton Financial Institutions Center
2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States
Thomas K. Kick
Deutsche Bundesbank ( email )
Wilhelm-Epstein-Str. 14
D-60431 Frankfurt/Main
Germany
Klaus Schaeck (Contact Author)
University of Wales - Bangor Business School ( email )
Bangor, Gwynedd, Wales LL57 2DG
United Kingdom
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References:  186
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