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Do higher solvency ratios reduce the costs of bailing out insured banks?

April 26, 2017bailing Banks costs insured ratios reduce solvency

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Do higher solvency ratios reduce the costs of bailing out insured banks?

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International Journal of Finance & Economics, 2004, vol. 9, issue 1, pages 39-48 Abstract: The relationship between solvency constraints and bank behaviour in the presence of fixed rate deposit insurance is investigated. A rise in the minimum solvency ratio does not necessarily reduce the adverse consequences of moral hazard: bank efficiency may fall and expected bailout costs may rise. Such outcomes are possible even if credit risk is purely systemic. Similar results obtain in respect of level increases in bank capital, tangible or intangible, although in this case purely systemic risk excludes perverse outcomes. Copyright © 2003 John Wiley & Sons, Ltd. Date: 2004 View list of references Track citations by RSS feed Downloads: (external link) http://hdl.handle.net/10.1002/ijfe.220 Link to full text; subscription required (text/html) Related works: This item may be available elsewhere in EconPapers: Search for items with the same title.