Size and Risk-Taking of Financial Institutions

2010 ◽  
Author(s):  
Jun Lu
Keyword(s):  
Financial Institutions ◽  
Risk Taking

scholarly journals Capital Levels and Risk-Taking Propensity in Financial Institutions

2014 ◽  
Vol 3 (1) ◽  
Author(s):  
Giovanni Barone-Adesi ◽  
Walter Farkas ◽  
Pablo Koch-Medina
Keyword(s):  
Financial Institutions ◽  
Risk Taking

Non‐bank financial institutions regulation and risk‐taking

2012 ◽  
Vol 20 (4) ◽  
pp. 433-450 ◽  
Author(s):  
Isaac Ofoeda ◽  
Joshua Abor ◽  
Charles K.D. Adjasi
Keyword(s):  
Financial Institutions ◽  
Risk Taking

Financial Structure and Incentives

2012 ◽  
Vol 221 ◽  
pp. R23-R30
Author(s):  
Martin Čihák ◽  
Asli Demirgüç-Kunt
Keyword(s):  
Financial Markets ◽  
Financial Institutions ◽  
Risk Taking ◽  
Global Financial Crisis ◽  
Financial Sector ◽  
Financial Systems ◽  
Regulatory Approach ◽  
Private Incentives ◽  
The Global Financial Crisis

The article connects two streams of recent research on the financial sector. The first is the regulation literature, which emphasises the central role of incentives in the financial sector. It points out that the challenge of financial sector regulation, highlighted by the global financial crisis, is to align private incentives with public interest without taxing or subsidising private risk-taking. The second stream of research relates to financial structures and examines the mix of financial institutions and financial markets in an economy. It finds that, as economies develop, services provided by financial markets become comparatively more important than those provided by banks. The article brings these two streams together, pointing out that — as financial systems develop from bank-based to market-based — a traditional regulatory approach that relies on banking ratios becomes less effective. There is thus a greater need for properly monitoring and addressing the underlying incentive weaknesses in market-based systems.

scholarly journals An Assessment of TARP Assistance to Financial Institutions

2015 ◽  
Vol 29 (2) ◽  
pp. 53-80 ◽  
Author(s):  
Charles W. Calomiris ◽  
Urooj Khan
Keyword(s):  
Financial Markets ◽  
Financial Institutions ◽  
Risk Taking ◽  
Social Costs ◽  
Costs And Benefits ◽  
Troubled Asset Relief Program ◽  
Social Costs And Benefits ◽  
Relief Program ◽  
Single Approach ◽  
Perceived Unfairness

Six years after the passage of the 2008 Troubled Asset Relief Program, commonly known as TARP, it remains hard to measure the total social costs and benefits of the assistance to banks provided under TARP programs. TARP was not a single approach to assisting weak banks but rather a variety of changing solutions to a set of evolving problems. TARP's passage was associated with significant improvements in financial markets and the health of financial intermediaries, as well as an increase in the supply of lending by recipients. However, a full evaluation must also take into account other factors, including the risks borne by taxpayers in the course of the bailouts; moral-hazard costs that could result in more risk-taking in the future; and social costs related to perceived unfairness. Our evaluation is organized in five parts: 1) What did policymakers do? 2) What are the proper objectives of interventions like TARP assistance to financial institutions? 3) Did TARP succeed in those economic objectives? 4) Were TARP funds allocated purely on an economic basis, or did political favoritism play a role? 5) Would alternative policies, either alongside or instead of TARP, and alternative design features of TARP, have worked better?

scholarly journals Collective Moral Hazard and the Interbank Market

2020 ◽  
Vol 2020 (098) ◽  
pp. 1-60
Author(s):  
Levent Altinoglu ◽  
◽  
Joseph E. Stiglitz ◽  
Keyword(s):  
Moral Hazard ◽  
Financial Institutions ◽  
Portfolio Choice ◽  
Risk Taking ◽  
Financial System ◽  
Interbank Market ◽  
Constrained Efficiency ◽  
Macroprudential Regulation ◽  
Systemic Crisis ◽  
The Government

The concentration of risk within financial system is considered to be a source of systemic instability. We propose a theory to explain the structure of the financial system and show how it alters the risk taking incentives of financial institutions. We build a model of portfolio choice and endogenous contracts in which the government optimally intervenes during crises. By issuing financial claims to other institutions, relatively risky institutions endogenously become large and interconnected. This structure enables institutions to share the risk of systemic crisis in a privately optimal way, but channels funds to relatively risky investments and creates incentives even for smaller institutions to take excessive risks. Constrained efficiency can be implemented with macroprudential regulation designed to limit the interconnectedness of risky institutions.

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