Bank Competition, Risk, and Subordinated Debt

Niu, Jijun

doi:10.1007/s10693-007-0022-3

Cited by 15 publications

(24 citation statements)

References 24 publications

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“…In a similar setup, Niu (2008) assumes that subordinated (unsecured) creditors believe that banks gamble whenever they offer a deposit rate which differs from the deposit rate, offered to secured creditors in a potential prudent equilibrium. His framework contrasts to the setup presented here.…”

Section: The Impact Of a Bank Levy On Unsecured Debt On Banks' Risk‐tmentioning

confidence: 99%

Bank levy and bank risk‐taking

Diemer

2017

Rev Financ Econ

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A B S T R A C TIn the aftermath of the recent financial crisis, several countries implemented a bank levy. This paper studies the impact of different types of bank levies on the risk-taking behaviour of banks competing in the market for secured or unsecured debt à la Hotelling. We differentiate between three types of bank levies: a levy on secured liabilities, a levy on unsecured liabilities and a levy on risk-weighted assets. Banks collect funds and invest in either a prudent or a gambling asset. We find that a levy on secured and unsecured liabilities can prevent banks from investing in the gambling asset. A levy on risk-weighted assets also induces banks to behave more prudently. Such a levy is even more effective than a levy on liabilities if banks are wellcapitalized. Finally, a guarantee on debt makes a bank levy more effective.

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Section: The Impact Of a Bank Levy On Unsecured Debt On Banks' Risk‐tmentioning

confidence: 99%

Bank levy and bank risk‐taking

Diemer

2017

Rev Financ Econ

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“…By contrast, one sector of the financial services industry, the banking sector specifically, has been characterized by scholars as having an inherently gambling-like culture (McDowell, 2010), with modern banking often described as 'casino capitalism' (Strange, 1997). Indeed, Nobel Prize-winning economists conclude that the regulatory and competitive banking environment prevailing in recent decades 'tends to promote gambling in the banking sector' (Hellmann, Murdock & Stiglitz, 2000, p. 149), and a considerable stream of scholarly research has been devoted to investigating what is an acknowledged and entrenched gambling facet of the banking profession (see for example Aikman, Nelson & Tanaka, 2015;Dam, Escrihuela-Villar & Sanchez-Pages, 2015;Niu, 2008;Repullo, 2004;Vo, 2015).…”

Section: Occupation Choice and Risk-taking Propensitymentioning

confidence: 99%

Does the built-environment industry attract risk-taking individuals?

Phua

2016

Construction Management and Economics

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This exploratory research examines whether or not those attracted to professional-level occupations in the built-environment industry are innately physical risk-takers and hence potentially, thereby, more likely to countenance or contribute to physically risky workplace climates. Using individual-level data, the occupational attractiveness of the built-environment industry subsectors of construction management and architecture are each found positively and significantly to be predicted by physical risk-taking propensity, but not by a comparator risk-taking propensity, gambling. Conversely, the occupational attractiveness of a comparator profession in financial services is found to be significantly predicted by gambling risk-taking propensity, but not by physical risk-taking propensity. Although exploratory, our finding that two key professions in the built-environment industry are each discretely found to be attractive to physical risk-takers suggests not only that constituent occupations within the industry, but that the industry as a whole might perhaps engender a self-reinforcing suboptimal workplace safety climate. Accordingly, constituent subsectors of the industry may need both separately and collectively to consider the phenomenon of physical risk-taking propensity amongst the professionals it attracts in order effectively to set and manage the site work-place safety climate that such professionals are ultimately responsible for creating and delivering in a sector fraught with physical risks for site workers. The relationship between integrated design and construction and safety on construction projects. Construction Management and Economics, 28(9), 1007-1017. Behm, M. (2005) Linking construction fatalities to the design for construction safety concept. Safety Science, 43(8), 589-611. Beus, J.M., Dhanani, L.Y. and McCord, M.A. (2015) A meta-analysis of personality and Risk-taking -2 nd Revision.

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“…The impact of subordinated debt of banks' risk-taking is ambiguous. Niu (2008) argues that it may reduce banks' risk-taking, while Pennacchi (2010) shows that moral hazard may increase and even be higher than in the case of contingent capital. However, in both cases, the burden of these debt transformations is not borne by tax payers but by the banks' former debt holders and capital owners.…”

Section: Bank Bailoutsmentioning

confidence: 99%

What makes banking crisis resolution difficult? Lessons from Japan and the Nordic Countries

Diemer

Vollmer

2015

Eurasian Econ Rev

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Banking crisis resolution is often a long-lasting process with large fiscal and social costs. We ask which difficulties authorities face when choosing and implementing resolution packages. We survey the literature analyzing the impact of single resolution instruments on moral hazard and fiscal costs. We argue that no best-practice resolution package exists and that the implementation of a package is subject to coordination failures. Since crisis resolution packages are countryspecific, we follow a case-study approach and describe how regulators in Japan and the Nordic countries during the 1990s solved their financial crises. We identify several obstacles the authorities in these countries were faced with and analyse their crisis resolution in the context of moral hazard and fiscal costs. Finally, we use these lessons to reassess the policy reactions in the US and in Europe during the recent financial crisis.Keywords Banking crisis Á Resolution instruments Á Lender of last resort Á Owner of last resort Á Political coase theorem

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Bank Competition, Risk, and Subordinated Debt

Abstract: Bank regulation, subordinated debt, risk taking, imperfect competition, franchise value,

Cited by 15 publications

References 24 publications

Bank levy and bank risk‐taking

Bank levy and bank risk‐taking

Does the built-environment industry attract risk-taking individuals?

What makes banking crisis resolution difficult? Lessons from Japan and the Nordic Countries

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