Malherbe, F;
Bahaj, S;
(2020)
The Forced Safety Effect: How Higher Capital Requirements Can Increase Bank Lending.
The Journal of Finance
, 75
(6)
pp. 3013-3053.
10.1111/jofi.12958.
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Abstract
Government guarantees generate an implicit subsidy for banks. A capital requirement reduces this subsidy, through a simple liability composition effect. However, the guarantees also make a bank undervalue loans that generates surplus in states of the world in which it defaults. Raising the capital requirement makes the bank safer, which alleviates this problem. We refer to this mechanism, which we argue is empirically relevant, as the forced safety effect .
| Type: | Article |
|---|---|
| Title: | The Forced Safety Effect: How Higher Capital Requirements Can Increase Bank Lending |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1111/jofi.12958 |
| Publisher version: | https://doi.org/10.1111/jofi.12958 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management |
| URI: | https://discovery-pp.ucl.ac.uk/id/eprint/10091300 |
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