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Nội dung chi tiết: paper_berger-bouwman-kick-schaeck

paper_berger-bouwman-kick-schaeck

Bank risk taking and liquidity creation following regulatory interventions and capital supportAllen N. Berger1University of South Carolina. Wharton Fi

paper_berger-bouwman-kick-schaeckinancial Institutions Center, and CentER - Tilburg UniversityChrista H. s. BouwniairCase Western Reserve University and Wharton Financial Institutions

Center Thomas Kick3Deutsche BundesbankKlaus Schaeck4 Bangor University41548We use a unique dataset to study how regulatory interventions and capital paper_berger-bouwman-kick-schaeck

support affect the risk taking and liquidity creation of troubled banks We are the first to focus on both ty pes of actions. Using instrumental variab

paper_berger-bouwman-kick-schaeck

le techniques, we find evidence that regulatory interventions and capital support both succeed in reducing bank risk taking. Regulatory interventions

Bank risk taking and liquidity creation following regulatory interventions and capital supportAllen N. Berger1University of South Carolina. Wharton Fi

paper_berger-bouwman-kick-schaecki management and activities restrictions. These effects materialize quickly and persist in the long run. and are not offset by competitors' actions.Ke

ywords: risk taking, liquidity' creation, bank distress. regulatory interventions. capital supportJEL Classification: G21. G281Moore School of Busines paper_berger-bouwman-kick-schaeck

s. University of South Carolina. 1705 College Street. Columbia, sc 29208. United States. E-mail: abergenginoore.sc.edu2Case Western Reserve University

paper_berger-bouwman-kick-schaeck

'. Weatherhead School of Management. 10900 Euclid Avenue. 362 Peter B. Lewis Bldg. Cleveland. OH 44106. United States. E-mail Christa.bouwinangcase ed

Bank risk taking and liquidity creation following regulatory interventions and capital supportAllen N. Berger1University of South Carolina. Wharton Fi

paper_berger-bouwman-kick-schaeck University'. Hen Goleg. College Road. Bangor LL57 2DG. United Kingdom. Email: klaus.schaeckg bangor.ac.ukWe thank Yener Altunbas. Christina Bannier.

Charles Calomiris. Hans Degryse. Bob DeYoung. Klaus Dilllmann. Mariassunta Giannetti. Martin Goetz. Owain ap Gwilym. Philipp Hartmann. Chris Janies. A paper_berger-bouwman-kick-schaeck

lexey Levkov. Thilo Liebig. Gyongyi Loranth. Angela Maddalom. Phil Molyneux. Leonard Nakamura. Lars Norden. Enrico Onali. Steven Ongena. Rahica Roman.

paper_berger-bouwman-kick-schaeck

Sascha Steffen. Claus Schmitt. Greg Udell. Wolf Wagner, and Tanju Yomlmazer for usefill suggestions. We thank seminar and conference participants at:

Bank risk taking and liquidity creation following regulatory interventions and capital supportAllen N. Berger1University of South Carolina. Wharton Fi

paper_berger-bouwman-kick-schaeck Reserve University': Royal Economic Society Conference; RTF Workshop on Challenges for Regulators 111 the New Financial Landscape; European Economic

Association Meeting: European Finance Association Meeting; Conference on Information. Liquidity and Trust in Incomplete Financial Markets in Freiburg; paper_berger-bouwman-kick-schaeck

Conference on Liquidity’ and Liquidity Risks in Frankfurt; Financial Management Association Meeting; Financial Intermediation Research Society Meetin

paper_berger-bouwman-kick-schaeck

g; Financial Stability Conference in Tilburg; FDIC’JFSR Annual Bank Research Conference; Macro and Financial Econometrics Conference in Heidelberg; an

Bank risk taking and liquidity creation following regulatory interventions and capital supportAllen N. Berger1University of South Carolina. Wharton Fi

paper_berger-bouwman-kick-schaeck was initiated. He acknowledges support from the Leveriiulme Trust (Grant F'00174/Q) and the hospitality' of the Deutsche Bundesbank. This paper repre

sents the authors" personal opinions and does not necessarily reflect the views of the Deutsche Bundesbank or its staff.When banks are troubled, autho paper_berger-bouwman-kick-schaeck

rities often take actions aimed at reducing bank risk taking in order to limit bank failures, minimize losses to the deposit insurer and taxpayers, an

paper_berger-bouwman-kick-schaeck

d avoid disruptions to the economy. Their actions typically involve regulatory interventions (intrusions by regulators such as instructions to: dismis

Bank risk taking and liquidity creation following regulatory interventions and capital supportAllen N. Berger1University of South Carolina. Wharton Fi

paper_berger-bouwman-kick-schaeckow much liquidity banks create for customers, a core function of banks which supports the economy.1 * It is unlikely that authorities want to reduce l

iquidity creation since this may lower economic output, and inducing higher lending (a key component of bank liquidity creation) is often an explicit paper_berger-bouwman-kick-schaeck

goal of capital support.' The focus of oru paper is to empirically determine the effects of regulator interventions and capital support on risk taking

paper_berger-bouwman-kick-schaeck

and liquidity' creation.Theory predicts that regulatory interventions trigger reductions 111 portfolio risk since banks want to avoid losing then cha

Bank risk taking and liquidity creation following regulatory interventions and capital supportAllen N. Berger1University of South Carolina. Wharton Fi

paper_berger-bouwman-kick-schaeckheories of the effects of capital support, there are theories on the role of capital which is increased by this support These yield conflicting predic

tions about how capital affects risk taking and liquidity creation.3’4 Despite these theories, little has been done empirically. As discussed below, w paper_berger-bouwman-kick-schaeck

e know of no empirical studies on the effects of regulatory interventions on risk taking or liquidity creation, and only a few papers1 Banks create li

paper_berger-bouwman-kick-schaeck

quidity on the balance sheet by transforming illiquid assets such as loans into liquid liabilities such as transactions deposits: they also create liq

Bank risk taking and liquidity creation following regulatory interventions and capital supportAllen N. Berger1University of South Carolina. Wharton Fi

paper_berger-bouwman-kick-schaeck09).-Philippon and Sclmabl (2013) and Duchin and Sosyura (forthcoming) document that a goal of US TARP capital support was to increase lending.-Higher

bank capital may lower bank risk taking because it reduces asset-substitution moral hazard (Morrison and White. 2005) or strengthens banks’ monitorin paper_berger-bouwman-kick-schaeck

g incentives (Allen. Cailetti and Marquez. 2011. Mehran and Tliakoi. 2011). It may alternatively increase risk taking because it can incentivize banks

paper_berger-bouwman-kick-schaeck

to shift into riskier assets (Koehn and Santomcro. 1980: Calem and Robb. 1999). The effect of capital on liquidity creation is also not dear. Higher

Bank risk taking and liquidity creation following regulatory interventions and capital supportAllen N. Berger1University of South Carolina. Wharton Fi

paper_berger-bouwman-kick-schaeckiquidity since It improves their ability to absorb risks associated with liquidity' creation (Bhattachaiya and Thakor. 1993: Allen and Gale. 2004: Rcp

ullo. 2004; von Thadden. 2004)* Besides affecting bank risk taking, capital support and higher capital also often enhance the bank’s probability of su paper_berger-bouwman-kick-schaeck

rvival (Kick. Koener. and Poghosyan. 2010: Berger and Bouwman. 2013a).-1-on the effects of capital support on risk taking and lending (an element of l

paper_berger-bouwman-kick-schaeck

iquidity creation).Empirical investigation is challenging for four reasons, first. while regulatory mien ent ions and capital support are encountered

Bank risk taking and liquidity creation following regulatory interventions and capital supportAllen N. Berger1University of South Carolina. Wharton Fi

paper_berger-bouwman-kick-schaeckta horn the Deutsche Bundesbank (henceforth Bundesbank) that include detailed information on all actions taken bv authorities in Germany horn 1999-200

9. rhe authorities include national government agencies (which provide regulatory interventions and some capital support) and private bankers associat paper_berger-bouwman-kick-schaeck

ions (which provide most of the capital support).A second challenge is that even when authorities’ actions are made public, such actions are typically

paper_berger-bouwman-kick-schaeck

only observed during Clises, potentially confounding the effects of the actions with those of the crisis. The advantage of our sample is that it span

Bank risk taking and liquidity creation following regulatory interventions and capital supportAllen N. Berger1University of South Carolina. Wharton Fi

paper_berger-bouwman-kick-schaeckesponses differ during crisis and non-ciisis year's.A third challenge is that researchers typically have information only on a subset of the actions b

y authorities (e.g., they may have data on capital support but not on regulatory interventions). They may thus inadvertently ascribe the effects of th paper_berger-bouwman-kick-schaeck

e missing actions to the observed actions. We do not face this challenge since we have data on all regulatory interventions and capital support in Ger

paper_berger-bouwman-kick-schaeck

many, winch has the added bcncfil of allowing US to inv csligale whether they arc substitutes or complements.A final challenge is an identification pr

Bank risk taking and liquidity creation following regulatory interventions and capital supportAllen N. Berger1University of South Carolina. Wharton Fi

paper_berger-bouwman-kick-schaecks and capital support measures would fail to identify causal effects since even in rhe absence of these actions, banks may recognize problems and adju

st then risk taking and liquidity creation. I or example, being troubled may diminish the bank’s ability to offer loan commitments and long-termloans paper_berger-bouwman-kick-schaeck

(both of which contribute positively to risk taking and liquidity creation), while at the same time also resulting in regulator}7 interventions and ca

paper_berger-bouwman-kick-schaeck

pital support. We deal with this using instnunental variable (IV) analysis. We employ tluee instruments for regulatory interventions and capital suppo

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