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Liquidation, Bailout, and Bail-In: Insolvency Resolution Mechanisms and Bank Lending.
- Source :
- Journal of Financial & Quantitative Analysis; Feb2023, Vol. 58 Issue 1, p175-216, 42p
- Publication Year :
- 2023
-
Abstract
- We present a dynamic, continuous-time model in which risk averse inside equityholders set a bank's lending, payout, and financing policies, and the exposure of bank assets to crashes. We examine whether bailouts encourage excessive lending and risk taking compared to liquidation or bail-ins with debt-to-equity conversion or debt write-downs. The effects of the prevailing insolvency resolution mechanism (IRM) on the probability of insolvency, loss in default, and the bank's value suggest no single IRM is a panacea. We show how a bailout fund financed through a tax on bank dividends resolves bailouts without public money and without distorting insiders' incentives. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 00221090
- Volume :
- 58
- Issue :
- 1
- Database :
- Complementary Index
- Journal :
- Journal of Financial & Quantitative Analysis
- Publication Type :
- Academic Journal
- Accession number :
- 162012802
- Full Text :
- https://doi.org/10.1017/S0022109022000813