Abstract

http://ssrn.com/abstract=1925710
 
 

References (101)



 
 

Citations (15)



 


 



Safer Ratios, Riskier Portfolios: Banks’ Response to Government Aid


Ran Duchin


University of Washington - Michael G. Foster School of Business

Denis Sosyura


The Stephen M. Ross School of Business at the University of Michigan

February 19, 2014

Journal of Financial Economics (JFE), Forthcoming
Ross School of Business Paper No. 1165

Abstract:     
Using novel data on bank applications to the Troubled Asset Relief Program (TARP), we study the effect of government assistance on bank risk taking. Bailed-out banks initiate riskier loans and shift assets toward riskier securities after government support. However, this shift in risk occurs mostly within the same asset class and, therefore, remains undetected by regulatory capital ratios, which indicate improved capitalization at bailed-out banks. Consequently, these banks appear safer according to regulatory ratios, but show an increase in volatility and default risk. These findings are robust to controlling for credit demand and account for selection of TARP recipients by exploiting banks’ geography-based political connections as an instrument for bailout approvals.

Number of Pages in PDF File: 87

Keywords: bailout, TARP, risk, lending, financial crisis, moral hazard, banking

JEL Classification: E51, G01, G21, G28

Accepted Paper Series


Download This Paper

Date posted: September 12, 2011 ; Last revised: March 20, 2014

Suggested Citation

Duchin, Ran and Sosyura, Denis, Safer Ratios, Riskier Portfolios: Banks’ Response to Government Aid (February 19, 2014). Journal of Financial Economics (JFE), Forthcoming; Ross School of Business Paper No. 1165. Available at SSRN: http://ssrn.com/abstract=1925710 or http://dx.doi.org/10.2139/ssrn.1925710

Contact Information

Ran Duchin (Contact Author)
University of Washington - Michael G. Foster School of Business ( email )
Box 353200
Seattle, WA 98195-3200
United States
Denis Sosyura
The Stephen M. Ross School of Business at the University of Michigan ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
Feedback to SSRN


Paper statistics
Abstract Views: 4,836
Downloads: 1,090
Download Rank: 9,300
References:  101
Citations:  15

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.766 seconds