Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support

A.N. Berger, C.H.S. Bouwman, T. Kick, K. Schaeck

Research output: Working paperDiscussion paperOther research output

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Abstract

During times of bank distress, authorities often engage in regulatory interventions and provide capital support to reduce bank risk taking. An unintended effect of such actions may be a reduction in bank liquidity creation, with possible adverse consequences for the economy as a whole. This paper tests hypotheses regarding the effects of regulatory interventions and capital support on bank risk taking and liquidity creation using a unique dataset over the period 1999-2009. We find that both types of actions are generally associated with statistically significant reductions in risk taking and liquidity creation in the short run and long run. While the effects of regulatory interventions are also economically significant, the effects of capital support are only economically significant in the long run. Thus, both types of actions have important intended and unintended consequences with implications for policymakers.
Original languageEnglish
Place of PublicationTilburg
PublisherEBC
Volume2011-023
Publication statusPublished - 2011

Publication series

NameEBC Discussion Paper
Volume2011-023

Fingerprint

Liquidity
Bank risk taking
Unintended consequences
Politicians
Authority
Risk taking
Hypothesis test
Short-run
Distress

Keywords

  • risk taking
  • liquidity creation
  • bank distress
  • regulatory interventions
  • capital support

Cite this

Berger, A. N., Bouwman, C. H. S., Kick, T., & Schaeck, K. (2011). Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support. (EBC Discussion Paper; Vol. 2011-023). Tilburg: EBC.
Berger, A.N. ; Bouwman, C.H.S. ; Kick, T. ; Schaeck, K. / Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support. Tilburg : EBC, 2011. (EBC Discussion Paper).
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Berger, AN, Bouwman, CHS, Kick, T & Schaeck, K 2011 'Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support' EBC Discussion Paper, vol. 2011-023, EBC, Tilburg.

Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support. / Berger, A.N.; Bouwman, C.H.S.; Kick, T.; Schaeck, K.

Tilburg : EBC, 2011. (EBC Discussion Paper; Vol. 2011-023).

Research output: Working paperDiscussion paperOther research output

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Berger AN, Bouwman CHS, Kick T, Schaeck K. Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support. Tilburg: EBC. 2011. (EBC Discussion Paper).