A note on bank default risk under government capital injection coinciding with high future loss expectation

By:

LIN, Jyh - Horng

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Material type: Text

TextSeries: Applied Economics Letters ; Volume , number ,New York Taylor & Francis 2013Content type:

text

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unmediated

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Summary: This article proposes a framework for bank default risk measure under government capital injection explicitly coinciding with an adverse signal that a rescued bank is expected to have significant future losses. A bank facing a serious problem of early closure may have a strong incentive to participate in a government assistance programme. Recipients of government capital injections are encouraged to make additional loans at a reduced margin, and then increase the default risk in the bank's equity returns. These results may be due to the conflicting goals of the government's capital injection programme for bank recapitalization and bank lending.

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Item type	Current library	Call number	Vol info	Status	Notes	Date due	Barcode
Journal Article	Main Library - Special Collections	HB1.A666 APP (Browse shelf(Opens below))	Vol.20 , No.13 - 15 (Oct 2013)	Not for loan	For In House Use Only

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This article proposes a framework for bank default risk measure under government capital injection explicitly coinciding with an adverse signal that a rescued bank is expected to have significant future losses. A bank facing a serious problem of early closure may have a strong incentive to participate in a government assistance programme. Recipients of government capital injections are encouraged to make additional loans at a reduced margin, and then increase the default risk in the bank's equity returns. These results may be due to the conflicting goals of the government's capital injection programme for bank recapitalization and bank lending.

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