The marketability of bank assets and managerial rents: implications for financial stability
Ongoing financial innovation and greater information availability increase the tradability of bank assets and reduce banks' dependence on individual bank managers as private information in the lending process declines. In this paper we argue that this has two effects on banks, with opposing implications for banking stability. First, the hold-up problem between bank managers and shareholders becomes less severe. Consequently, banks' capital structure needs to be less concerned with disciplining the management. Deposits -the most effective disciplining device- can be reduced, increasing banks' resilience to adverse return shocks. However, limiting the hold-up problem also diminishes bank managers' rents, reducing their incentives to properly monitor and screen borrowers, with adverse implications for asset quality. Thus, even though the improved marketability of bank assets allows banks to adopt a safer capital structure, the default risk of banks does not necessarily decline.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: Postfach 10 06 02, 60006 Frankfurt|
Phone: 0 69 / 95 66 - 34 55
Fax: 0 69 / 95 66 30 77
Web page: http://www.bundesbank.de/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:zbw:bubdp2:6155. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.