Do higher solvency ratios reduce the cost of bailing out insured banks?

Eastwood, Robert (2004) Do higher solvency ratios reduce the cost of bailing out insured banks? International Journal of Finance and Economics, 9 (1). pp. 39-48. ISSN 1076-9307

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Abstract

The relationship between solvency constraints and bank behaviour in the presence of fixed rate deposit insurance is investigated. A rise in the minimum solvency ratio does not necessarily reduce the adverse consequences of moral hazard: bank efficiency may fall and expected bailout costs may rise. Such outcomes are possible even if credit risk is purely systemic. Similar results obtain in respect of level increases in bank capital, tangible or intangible, although in this case purely systemic risk excludes perverse outcomes.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Economics
Depositing User: Robert Eastwood
Date Deposited: 06 Feb 2012 20:49
Last Modified: 11 Jul 2012 10:22
URI: http://sro.sussex.ac.uk/id/eprint/28333
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