Implicit government guarantees leads to increased risk-taking at banks
Government support to banks through the provision of explicit or implicit guarantees affects the willingness of banks to take on risk by reducing market discipline or by increasing charter value, according to a recent Federal Reserve discussion paper.
International Evidence on Government Support and Risk-Taking in the Banking Sector, by Luis Brandao-Marques, Ricardo Correa and Horacio Saprizay, uses an international sample of rated banks and find that government support is associated with more
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