Bank Bailouts, Competition, and the Disparate Effects for Borrower and Depositor Welfare
This paper investigates how government interventions into banking systems such as blanket guarantees, liquidity support, recapitalizations, and nationalizations affect banking competition. This debate is important because the pricing of banking pro...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, D.C.
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2013/04/17580914/bank-bailouts-competition-disparate-effects-borrower-depositor-welfare http://hdl.handle.net/10986/14449 |
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okr-10986-14449 |
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oai_dc |
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Digital Repository |
| institution_category |
Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ACCESS TO BANKING ACCESS TO BANKING SERVICES ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ACCOUNTING ASSET MANAGEMENT ASSET MANAGEMENT COMPANIES BAILOUT BALANCE SHEET BALANCE SHEETS BALANCE-SHEET BANK ACCOUNTS BANK ASSETS BANK BAILOUTS BANK BRANCH BANK BRANCHES BANK COMPETITION BANK CONSOLIDATION BANK CREDIT BANK CUSTOMERS BANK DEBT BANK FAILURES BANK LENDING BANK LIQUIDITY BANK POLICY BANK PROFITABILITY BANK RECAPITALIZATION BANK REGULATION BANK SPREADS BANKING CRISES BANKING CRISIS BANKING MARKET BANKING MARKETS BANKING PANICS BANKING SECTOR BANKING SECTORS BANKING SERVICES BANKING SYSTEM BANKING SYSTEM ASSETS BANKING SYSTEMS BANKS BARRIER TO ENTRY BORROWER BRANCH DENSITY CAPITAL ACCOUNT CAPITAL INJECTIONS CAPITALIZATION CENTRAL BANK CHECKS COMMERCIAL LOANS COMPETITOR BANKS CONSOLIDATION CONVERSIONS CORE DEPOSITS CORPORATE BORROWERS CREDIT AVAILABILITY CREDIT MARKET CREDIT PROVISION CREDITORS CRISIS COUNTRIES CURRENCY CRISES CURRENCY CRISIS DEBT DEMAND FOR CREDIT DEPENDENT DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE COVERAGE DEPOSITOR DEPOSITORS DEPOSITS DISCLOSURE REQUIREMENTS DISTRESSED BANKS DOMESTIC BANKS DOMESTIC CREDIT DUMMY VARIABLE DUMMY VARIABLES ECONOMIC DEVELOPMENT ECONOMICS EMERGENCY LENDING EMERGING MARKET EMERGING MARKET COUNTRY EMERGING MARKETS ENTREPRENEURSHIP ENTRY BARRIERS EQUITY CAPITAL EQUITY PARTICIPATION EQUITY STAKE FAIR VALUE FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL DISTRESS FINANCIAL FRAGILITY FINANCIAL INTERMEDIATION FINANCIAL MARKETS FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEM DEVELOPMENT FINANCIAL SYSTEM DEVELOPMENTS FINANCIAL SYSTEMS FOREIGN BANK FOREIGN BANK PARTICIPATION FOREIGN BANK PENETRATION FOREIGN BANKS FOREIGN CREDITORS FOREIGN CURRENCY FOREIGN CURRENCY LOANS FUTURE BAILOUTS GLOBAL BANKING GOVERNMENT AID GOVERNMENT EXPENDITURE GOVERNMENT INTERVENTION GOVERNMENT INTERVENTIONS GOVERNMENT INVESTMENT GOVERNMENT OWNERSHIP GOVERNMENT SUPPORT HELD TO MATURITY SECURITIES INCOME CATEGORIES INCOME CATEGORY INCOME GROUP INDIVIDUAL BANKS INFLATION INFORMATION ASYMMETRIES INSTRUMENT INTANGIBLE INTANGIBLE ASSETS INTANGIBLES INTEREST INCOME INTEREST RATE INTEREST RATE RISK INTERNATIONAL BANK LARGE BANK LARGE BANKS LEGAL REQUIREMENTS LENDER LENDER OF LAST RESORT LIMITED LIABILITY LIQUIDATIONS LIQUIDITY SUPPORT LOAN LOAN CATEGORIES LOAN GUARANTEES LOAN MARKET LOAN MARKETS LOAN RATE LOAN RATES LOAN VOLUMES MACROECONOMIC STABILITY MACROECONOMICS MARKET CAPITALIZATION MARKET COMPETITION MARKET CONCENTRATION MARKET CONDITIONS MARKET DISCIPLINE MARKET ECONOMIES MARKET PARTICIPANTS MARKET SHARE MARKET SHARES MARKET STRUCTURE MARKET VALUES MATURITY MATURITY MISMATCH MERGERS MONETARY FUND MONETARY POLICY MONEY MARKET MONEY MARKET RATE MONEY MARKET RATES MORAL HAZARD MORTGAGE LOANS NATIONALIZED BANKS NET INTEREST MARGIN NET WORTH NONPERFORMING LOANS NUMBER OF BANK PAYMENT SYSTEMS POLICY RESPONSE POLICY RESPONSES POLITICAL ECONOMY PORTFOLIO PORTFOLIOS POSITIVE COEFFICIENT PRINCIPAL-AGENT PROBLEMS PROFITABILITY PROVISION OF CREDIT PUBLIC FUNDS RATE OF RETURN REAL ESTATE RECAPITALIZATION RECAPITALIZATIONS REGULATORY FORBEARANCE REGULATORY FRAMEWORKS RESIDENTIAL MORTGAGE RISK TAKING RISKY ASSETS RISKY BORROWERS SAFETY NET SAVINGS SECURITIES SMALL BANKS SOLVENCY STOCK RETURNS STRUCTURAL ADJUSTMENT SUPERVISION OF BANKS SYSTEMIC BANKING CRISES SYSTEMIC CRISES SYSTEMIC CRISIS SYSTEMIC RISK TAX TAX POLICIES TERMS OF LOAN TRANSPARENCY TRANSPARENT SYSTEM |
| spellingShingle |
ACCESS TO BANKING ACCESS TO BANKING SERVICES ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ACCOUNTING ASSET MANAGEMENT ASSET MANAGEMENT COMPANIES BAILOUT BALANCE SHEET BALANCE SHEETS BALANCE-SHEET BANK ACCOUNTS BANK ASSETS BANK BAILOUTS BANK BRANCH BANK BRANCHES BANK COMPETITION BANK CONSOLIDATION BANK CREDIT BANK CUSTOMERS BANK DEBT BANK FAILURES BANK LENDING BANK LIQUIDITY BANK POLICY BANK PROFITABILITY BANK RECAPITALIZATION BANK REGULATION BANK SPREADS BANKING CRISES BANKING CRISIS BANKING MARKET BANKING MARKETS BANKING PANICS BANKING SECTOR BANKING SECTORS BANKING SERVICES BANKING SYSTEM BANKING SYSTEM ASSETS BANKING SYSTEMS BANKS BARRIER TO ENTRY BORROWER BRANCH DENSITY CAPITAL ACCOUNT CAPITAL INJECTIONS CAPITALIZATION CENTRAL BANK CHECKS COMMERCIAL LOANS COMPETITOR BANKS CONSOLIDATION CONVERSIONS CORE DEPOSITS CORPORATE BORROWERS CREDIT AVAILABILITY CREDIT MARKET CREDIT PROVISION CREDITORS CRISIS COUNTRIES CURRENCY CRISES CURRENCY CRISIS DEBT DEMAND FOR CREDIT DEPENDENT DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE COVERAGE DEPOSITOR DEPOSITORS DEPOSITS DISCLOSURE REQUIREMENTS DISTRESSED BANKS DOMESTIC BANKS DOMESTIC CREDIT DUMMY VARIABLE DUMMY VARIABLES ECONOMIC DEVELOPMENT ECONOMICS EMERGENCY LENDING EMERGING MARKET EMERGING MARKET COUNTRY EMERGING MARKETS ENTREPRENEURSHIP ENTRY BARRIERS EQUITY CAPITAL EQUITY PARTICIPATION EQUITY STAKE FAIR VALUE FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL DISTRESS FINANCIAL FRAGILITY FINANCIAL INTERMEDIATION FINANCIAL MARKETS FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEM DEVELOPMENT FINANCIAL SYSTEM DEVELOPMENTS FINANCIAL SYSTEMS FOREIGN BANK FOREIGN BANK PARTICIPATION FOREIGN BANK PENETRATION FOREIGN BANKS FOREIGN CREDITORS FOREIGN CURRENCY FOREIGN CURRENCY LOANS FUTURE BAILOUTS GLOBAL BANKING GOVERNMENT AID GOVERNMENT EXPENDITURE GOVERNMENT INTERVENTION GOVERNMENT INTERVENTIONS GOVERNMENT INVESTMENT GOVERNMENT OWNERSHIP GOVERNMENT SUPPORT HELD TO MATURITY SECURITIES INCOME CATEGORIES INCOME CATEGORY INCOME GROUP INDIVIDUAL BANKS INFLATION INFORMATION ASYMMETRIES INSTRUMENT INTANGIBLE INTANGIBLE ASSETS INTANGIBLES INTEREST INCOME INTEREST RATE INTEREST RATE RISK INTERNATIONAL BANK LARGE BANK LARGE BANKS LEGAL REQUIREMENTS LENDER LENDER OF LAST RESORT LIMITED LIABILITY LIQUIDATIONS LIQUIDITY SUPPORT LOAN LOAN CATEGORIES LOAN GUARANTEES LOAN MARKET LOAN MARKETS LOAN RATE LOAN RATES LOAN VOLUMES MACROECONOMIC STABILITY MACROECONOMICS MARKET CAPITALIZATION MARKET COMPETITION MARKET CONCENTRATION MARKET CONDITIONS MARKET DISCIPLINE MARKET ECONOMIES MARKET PARTICIPANTS MARKET SHARE MARKET SHARES MARKET STRUCTURE MARKET VALUES MATURITY MATURITY MISMATCH MERGERS MONETARY FUND MONETARY POLICY MONEY MARKET MONEY MARKET RATE MONEY MARKET RATES MORAL HAZARD MORTGAGE LOANS NATIONALIZED BANKS NET INTEREST MARGIN NET WORTH NONPERFORMING LOANS NUMBER OF BANK PAYMENT SYSTEMS POLICY RESPONSE POLICY RESPONSES POLITICAL ECONOMY PORTFOLIO PORTFOLIOS POSITIVE COEFFICIENT PRINCIPAL-AGENT PROBLEMS PROFITABILITY PROVISION OF CREDIT PUBLIC FUNDS RATE OF RETURN REAL ESTATE RECAPITALIZATION RECAPITALIZATIONS REGULATORY FORBEARANCE REGULATORY FRAMEWORKS RESIDENTIAL MORTGAGE RISK TAKING RISKY ASSETS RISKY BORROWERS SAFETY NET SAVINGS SECURITIES SMALL BANKS SOLVENCY STOCK RETURNS STRUCTURAL ADJUSTMENT SUPERVISION OF BANKS SYSTEMIC BANKING CRISES SYSTEMIC CRISES SYSTEMIC CRISIS SYSTEMIC RISK TAX TAX POLICIES TERMS OF LOAN TRANSPARENCY TRANSPARENT SYSTEM Calderon, Cesar Schaeck, Klaus Bank Bailouts, Competition, and the Disparate Effects for Borrower and Depositor Welfare |
| relation |
Policy Research Working Paper;No.6410 |
| description |
This paper investigates how government
interventions into banking systems such as blanket
guarantees, liquidity support, recapitalizations, and
nationalizations affect banking competition. This debate is
important because the pricing of banking products has
implications for borrower and depositor welfare. Exploiting
data for 124 countries that witnessed different policy
responses to 41 banking crises, and using
difference-in-difference estimations, the paper presents the
following key results: (i) Government interventions reduce
Lerner indices and net interest margins. This effect is
robust to a battery of falsification and placebo tests, and
the competitive response also cannot be explained by
alternative forces. The competition-increasing effect on
Lerner indices and net interest margins is also confirmed
once the non-random assignment of interventions is accounted
for using instrumental variable techniques that exploit
exogenous variation in the electoral cycle and in the design
of the regulatory architecture across countries. (ii)
Consistent with theoretical predictions, the
competition-increasing effect of government interventions is
greater in more concentrated and less contestable banking
sectors, but the effects are mitigated in more transparent
banking systems. (iii) The competitive effects are
economically substantial, remain in place for at least 5
years, and the interventions also coincide with an increase
in zombie banks. The results therefore offer direct evidence
of the mechanism by which government interventions
contribute to banks' risk-shifting behavior as reported
in recent studies on bank level runs via competition. (iv)
Government interventions disparately affect bank
customers' welfare. While liquidity support,
recapitalizations, and nationalizations improve borrower
welfare by reducing loan rates, deposit rates decline. The
empirical setup allows quantifying these disparate effects. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Calderon, Cesar Schaeck, Klaus |
| author_facet |
Calderon, Cesar Schaeck, Klaus |
| author_sort |
Calderon, Cesar |
| title |
Bank Bailouts, Competition, and the Disparate Effects for Borrower and Depositor Welfare |
| title_short |
Bank Bailouts, Competition, and the Disparate Effects for Borrower and Depositor Welfare |
| title_full |
Bank Bailouts, Competition, and the Disparate Effects for Borrower and Depositor Welfare |
| title_fullStr |
Bank Bailouts, Competition, and the Disparate Effects for Borrower and Depositor Welfare |
| title_full_unstemmed |
Bank Bailouts, Competition, and the Disparate Effects for Borrower and Depositor Welfare |
| title_sort |
bank bailouts, competition, and the disparate effects for borrower and depositor welfare |
| publisher |
World Bank, Washington, D.C. |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2013/04/17580914/bank-bailouts-competition-disparate-effects-borrower-depositor-welfare http://hdl.handle.net/10986/14449 |
| _version_ |
1764429337090588672 |
| spelling |
okr-10986-144492021-04-23T14:03:19Z Bank Bailouts, Competition, and the Disparate Effects for Borrower and Depositor Welfare Calderon, Cesar Schaeck, Klaus ACCESS TO BANKING ACCESS TO BANKING SERVICES ACCESS TO FINANCE ACCESS TO FINANCIAL SERVICES ACCOUNTING ASSET MANAGEMENT ASSET MANAGEMENT COMPANIES BAILOUT BALANCE SHEET BALANCE SHEETS BALANCE-SHEET BANK ACCOUNTS BANK ASSETS BANK BAILOUTS BANK BRANCH BANK BRANCHES BANK COMPETITION BANK CONSOLIDATION BANK CREDIT BANK CUSTOMERS BANK DEBT BANK FAILURES BANK LENDING BANK LIQUIDITY BANK POLICY BANK PROFITABILITY BANK RECAPITALIZATION BANK REGULATION BANK SPREADS BANKING CRISES BANKING CRISIS BANKING MARKET BANKING MARKETS BANKING PANICS BANKING SECTOR BANKING SECTORS BANKING SERVICES BANKING SYSTEM BANKING SYSTEM ASSETS BANKING SYSTEMS BANKS BARRIER TO ENTRY BORROWER BRANCH DENSITY CAPITAL ACCOUNT CAPITAL INJECTIONS CAPITALIZATION CENTRAL BANK CHECKS COMMERCIAL LOANS COMPETITOR BANKS CONSOLIDATION CONVERSIONS CORE DEPOSITS CORPORATE BORROWERS CREDIT AVAILABILITY CREDIT MARKET CREDIT PROVISION CREDITORS CRISIS COUNTRIES CURRENCY CRISES CURRENCY CRISIS DEBT DEMAND FOR CREDIT DEPENDENT DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE COVERAGE DEPOSITOR DEPOSITORS DEPOSITS DISCLOSURE REQUIREMENTS DISTRESSED BANKS DOMESTIC BANKS DOMESTIC CREDIT DUMMY VARIABLE DUMMY VARIABLES ECONOMIC DEVELOPMENT ECONOMICS EMERGENCY LENDING EMERGING MARKET EMERGING MARKET COUNTRY EMERGING MARKETS ENTREPRENEURSHIP ENTRY BARRIERS EQUITY CAPITAL EQUITY PARTICIPATION EQUITY STAKE FAIR VALUE FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL DISTRESS FINANCIAL FRAGILITY FINANCIAL INTERMEDIATION FINANCIAL MARKETS FINANCIAL SERVICES FINANCIAL STABILITY FINANCIAL STUDIES FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEM DEVELOPMENT FINANCIAL SYSTEM DEVELOPMENTS FINANCIAL SYSTEMS FOREIGN BANK FOREIGN BANK PARTICIPATION FOREIGN BANK PENETRATION FOREIGN BANKS FOREIGN CREDITORS FOREIGN CURRENCY FOREIGN CURRENCY LOANS FUTURE BAILOUTS GLOBAL BANKING GOVERNMENT AID GOVERNMENT EXPENDITURE GOVERNMENT INTERVENTION GOVERNMENT INTERVENTIONS GOVERNMENT INVESTMENT GOVERNMENT OWNERSHIP GOVERNMENT SUPPORT HELD TO MATURITY SECURITIES INCOME CATEGORIES INCOME CATEGORY INCOME GROUP INDIVIDUAL BANKS INFLATION INFORMATION ASYMMETRIES INSTRUMENT INTANGIBLE INTANGIBLE ASSETS INTANGIBLES INTEREST INCOME INTEREST RATE INTEREST RATE RISK INTERNATIONAL BANK LARGE BANK LARGE BANKS LEGAL REQUIREMENTS LENDER LENDER OF LAST RESORT LIMITED LIABILITY LIQUIDATIONS LIQUIDITY SUPPORT LOAN LOAN CATEGORIES LOAN GUARANTEES LOAN MARKET LOAN MARKETS LOAN RATE LOAN RATES LOAN VOLUMES MACROECONOMIC STABILITY MACROECONOMICS MARKET CAPITALIZATION MARKET COMPETITION MARKET CONCENTRATION MARKET CONDITIONS MARKET DISCIPLINE MARKET ECONOMIES MARKET PARTICIPANTS MARKET SHARE MARKET SHARES MARKET STRUCTURE MARKET VALUES MATURITY MATURITY MISMATCH MERGERS MONETARY FUND MONETARY POLICY MONEY MARKET MONEY MARKET RATE MONEY MARKET RATES MORAL HAZARD MORTGAGE LOANS NATIONALIZED BANKS NET INTEREST MARGIN NET WORTH NONPERFORMING LOANS NUMBER OF BANK PAYMENT SYSTEMS POLICY RESPONSE POLICY RESPONSES POLITICAL ECONOMY PORTFOLIO PORTFOLIOS POSITIVE COEFFICIENT PRINCIPAL-AGENT PROBLEMS PROFITABILITY PROVISION OF CREDIT PUBLIC FUNDS RATE OF RETURN REAL ESTATE RECAPITALIZATION RECAPITALIZATIONS REGULATORY FORBEARANCE REGULATORY FRAMEWORKS RESIDENTIAL MORTGAGE RISK TAKING RISKY ASSETS RISKY BORROWERS SAFETY NET SAVINGS SECURITIES SMALL BANKS SOLVENCY STOCK RETURNS STRUCTURAL ADJUSTMENT SUPERVISION OF BANKS SYSTEMIC BANKING CRISES SYSTEMIC CRISES SYSTEMIC CRISIS SYSTEMIC RISK TAX TAX POLICIES TERMS OF LOAN TRANSPARENCY TRANSPARENT SYSTEM This paper investigates how government interventions into banking systems such as blanket guarantees, liquidity support, recapitalizations, and nationalizations affect banking competition. This debate is important because the pricing of banking products has implications for borrower and depositor welfare. Exploiting data for 124 countries that witnessed different policy responses to 41 banking crises, and using difference-in-difference estimations, the paper presents the following key results: (i) Government interventions reduce Lerner indices and net interest margins. This effect is robust to a battery of falsification and placebo tests, and the competitive response also cannot be explained by alternative forces. The competition-increasing effect on Lerner indices and net interest margins is also confirmed once the non-random assignment of interventions is accounted for using instrumental variable techniques that exploit exogenous variation in the electoral cycle and in the design of the regulatory architecture across countries. (ii) Consistent with theoretical predictions, the competition-increasing effect of government interventions is greater in more concentrated and less contestable banking sectors, but the effects are mitigated in more transparent banking systems. (iii) The competitive effects are economically substantial, remain in place for at least 5 years, and the interventions also coincide with an increase in zombie banks. The results therefore offer direct evidence of the mechanism by which government interventions contribute to banks' risk-shifting behavior as reported in recent studies on bank level runs via competition. (iv) Government interventions disparately affect bank customers' welfare. While liquidity support, recapitalizations, and nationalizations improve borrower welfare by reducing loan rates, deposit rates decline. The empirical setup allows quantifying these disparate effects. 2013-07-10T19:31:07Z 2013-07-10T19:31:07Z 2013-04 http://documents.worldbank.org/curated/en/2013/04/17580914/bank-bailouts-competition-disparate-effects-borrower-depositor-welfare http://hdl.handle.net/10986/14449 English en_US Policy Research Working Paper;No.6410 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research |