The Effects of Government Interventions in the Financial Sector on Banking Competition and the Evolution of Zombie Banks

66 Pages Posted: 30 Oct 2014

Multiple version iconThere are 3 versions of this paper

Date Written: October 30, 2014

Abstract

We investigate how government interventions such as blanket guarantees, liquidity support, recapitalizations, and nationalizations affect banking competition. This issue is critical for stability, access to finance, and economic growth. Exploiting cross-country and cross-time variation in the timing of interventions and accounting for their non-randomness, we document that liquidity support, recapitalizations, and nationalizations trigger large increases in competition. We also find some more nuanced evidence that zombie banks’ market shares in crisis countries evolve together with interventions. A higher frequency of interventions coincides with greater zombie bank presence, and increases in competition are larger when zombie banks occupy bigger market shares.

Keywords: bank bailouts; government interventions; competition; zombie banks; loan and deposit rates

JEL Classification: G21, G28

Suggested Citation

Calderon, Cesar A. and Schaeck, Klaus, The Effects of Government Interventions in the Financial Sector on Banking Competition and the Evolution of Zombie Banks (October 30, 2014). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2516725

Cesar A. Calderon

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States
202-458-7214 (Phone)
202-522-7528 (Fax)

HOME PAGE: http://www.worldbank.org/laceconomist

Klaus Schaeck (Contact Author)

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

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