Query:
faculty: "FEB" and publication year: "2001"
| Authors | E.C. Perotti, J. Suarez | | Title | Last bank standing: what do I gain if you fail? |
| Publisher | Centre for Economic Policy Research |
| Place | London |
| Year | 2001 |
| Title series | CEPR Discussion paper series |
| Series number | 2933 |
| Faculty | Faculty of Economics and Business |
| Institute/dept. | FEB: Amsterdam Business School Research Institute (ABS-RI) |
| Keywords | banking crises; bank mergers; charter value; market structure dynamics; prudential regulation |
| Classification | JEL classification codes: G21 , G28 , L10 |
| Abstract | Banks are highly leveraged institutions, potentially attracted to speculative lending even without deposit insurance. A counterbalancing incentive to lend prudently is the risk of loss of charter value, which depends on future rents. We show in a dynamic model that current concentration does not reduce speculative lending, and may in fact increase it. In contrast, a policy of temporary increases in market concentration after a bank failure, by promoting a takeover of failed banks by a solvent institution, is very effective. By making speculative lending decisions strategic substitutes, it grants bankers an incentive to remain solvent. Subsequent entry policy fine-tunes the trade-off between the social costs of reduced competition and the gain in stability. |
| Document type | Report |
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