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Banking risks around the world - the implicit safety net subsidy approach

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Author Info
Laeven, Luc

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Abstract

The author calculates gross safety net subsidies for a large sample of banks in 12 countries, to assess the relationship between the risk-taking behavior of banks, and certain ban characteristics. He finds that gross safety net subsidies are higher for banks that have concentrated ownership, that are affiliated with a business group, that are small, or that have high credit growth, and for banks in countries with low GDP per capita, high inflation, or poor quality, and enforcement of the legal system. These findings suggest that the moral hazard behavior of a bank depends on its institutional environment, and its corporate governance structure. The author also presents a matrix that shows estimates of safety net subsidies for a range of given combinations of equity volatilities, and equity-to-deposit ratios. These figures could be used as input to an early warning system, for both individual, and systemic banking problems.

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Publisher Info
Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2473.

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Date of creation: 30 Nov 2000
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Handle: RePEc:wbk:wbrwps:2473

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Related research
Keywords: Banks&Banking Reform; Financial Intermediation; Financial Crisis Management&Restructuring; Environmental Economics&Policies; Hazard Risk Management;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Pennacchi, George G, 1987. "A Reexamination of the Over- (or Under-) Pricing of Deposit Insurance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(3), pages 340-60, August. [Downloadable!] (restricted)
  2. Rafael La Porta & Florencio Lopezde-Silanes & Andrei Shleifer, 2000. "Government Ownership of Banks," NBER Working Papers 7620, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Demirguc-Kunt, Asl1 & Huizinga, Harry, 1999. "Market discipline and financial safety net design," Policy Research Working Paper Series 2183, The World Bank. [Downloadable!]
    Other versions:
  4. Duan, Jin-Chuan & Yu, Min-Teh, 1999. "Capital standard, forbearance and deposit insurance pricing under GARCH," Journal of Banking & Finance, Elsevier, vol. 23(11), pages 1691-1706, November. [Downloadable!] (restricted)
  5. Enrica Detragiache & Asli Demirgüç-Kunt, 2000. "Does Deposit Insurance Increase Banking System Stability?," IMF Working Papers 00/3, International Monetary Fund.
  6. Fries Steven & Mason Robin & Perraudin William, 1993. "Evaluating Deposit Insurance for Japanese Banks," Journal of the Japanese and International Economies, Elsevier, vol. 7(4), pages 356-386, December. [Downloadable!] (restricted)
  7. Demirguc-Kunt, Asli & Detragiache, Enrica, 1999. "Does deposit insurance increase banking system stability ? An empirical investigation," Policy Research Working Paper Series 2247, The World Bank. [Downloadable!]
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  8. Chan, Yuk-Shee & Greenbaum, Stuart I & Thakor, Anjan V, 1992. " Is Fairly Priced Deposit Insurance Possible?," Journal of Finance, American Finance Association, vol. 47(1), pages 227-45, March. [Downloadable!] (restricted)
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  9. Marcus, Alan J & Shaked, Israel, 1984. "The Valuation of FDIC Deposit Insurance Using Option-pricing Estimates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 446-60, November. [Downloadable!] (restricted)
  10. Duan, Jin-Chuan & Yu, Min-Teh, 1994. "Assessing the cost of Taiwan's deposit insurance," Pacific-Basin Finance Journal, Elsevier, vol. 2(1), pages 73-90, March. [Downloadable!] (restricted)
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  11. Bhattacharya, Sudipto & Boot, Arnoud W A & Thakor, Anjan V, 1998. "The Economics of Bank Regulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 745-70, November.
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  12. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Beck, Thorsten, 2001. "Deposit insurance as private club - Is Germany a model?," Policy Research Working Paper Series 2559, The World Bank. [Downloadable!]
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  2. Edward Kane, 2001. "Using disaster planning to optimize expenditures on financial safety nets," Atlantic Economic Journal, International Atlantic Economic Society, vol. 29(3), pages 243-253, September. [Downloadable!] (restricted)
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