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Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support

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Listed:
  • Berger, A.N.
  • Bouwman, C.H.S.
  • Kick, T.
  • Schaeck, K.

Abstract

We present the first study that jointly examines how regulatory interventions and capital support affect troubled banks' risk taking and liquidity creation. Using instrumental variables, we document that regulatory interventions and capital support both succeed in reducing bank risk taking. Regulatory interventions also trigger decreases in liquidity creation, pointing towards potential social costs of making troubled banks safer. These effects materialize quickly, persist in the long run, and are not offset by competitors' actions. Our findings provide novel insights into how supervision affects bank conduct and informs the debate about the design of bank bailouts.
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Suggested Citation

  • Berger, A.N. & Bouwman, C.H.S. & Kick, T. & Schaeck, K., 2011. "Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support," Other publications TiSEM 22c97f78-b2e8-48a0-a1fd-f, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:22c97f78-b2e8-48a0-a1fd-f7e1df76f944
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    JEL classification:

    • 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

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