Safer ratios, riskier portfolios: Banks' response to government aid

• 成果类型: Article
• 署名作者: Duchin, Ran; Sosyura, Denis
• 署名单位: University of Washington; University of Washington Seattle; University of Michigan System; University of Michigan
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2014.03.005
• 发表日期: 2014
• 页码: 1-28
• 关键词: Bailout; tarp; RISK; lending; Financial crisis; moral hazard; banking

摘要

Using novel data on bank applications to the Troubled Asset Relief Program (TARP), we study the effect of government assistance on bank risk taking. Bailed-out banks initiate riskier loans and shift assets toward riskier securities after receiving government support. However, this shift in risk occurs mostly within the same asset class and, therefore, remains undetected by regulatory capital ratios, which indicate improved capitalization at bailed-out banks. Consequently, these banks appear safer according to regulatory ratios, but show an increase in volatility and default risk. These findings are robust to controlling for credit demand and account for selection of TARP recipients by exploiting banks' geography-based political connections as an instrument for bailout approvals. (C) 2014 Elsevier B.V. All rights reserved.