When bigger isn’t better: Bail outs and bank behaviour
AbstractThe traditional theory of commercial banking explains maturity transformation and liquidity provision assuming no asymmetric information and no excess profits. It captures the possibility of bank runs and business cycle risk; but it ignores the moral hazard problems connected with risk-taking by large banks counting on state bail outs. In this paper market concentration and risk-shifting is incorporated in an analytically tractable fashion; and the modified framework is used to consider measures to restore competition and stability--including, in particular, those recommended for the UK by the Independent Commission on Banking (2011), chaired by Sir John Vickers.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8602.
Date of creation: Oct 2011
Date of revision:
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Other versions of this item:
- Miller, Marcus & Zhang, Lei & Li, Han Hao, 2011. "When bigger isn’t better: bailouts and bank behaviour," CAGE Online Working Paper Series 65, Competitive Advantage in the Global Economy (CAGE).
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-22 (All new papers)
- NEP-BAN-2011-10-22 (Banking)
- NEP-CBA-2011-10-22 (Central Banking)
- NEP-CIS-2011-10-22 (Confederation of Independent States)
- NEP-CTA-2011-10-22 (Contract Theory & Applications)
- NEP-MAC-2011-10-22 (Macroeconomics)
- NEP-REG-2011-10-22 (Regulation)
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