A note on bank default risk under government capital injection coinciding with high future loss expectation

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Title:	A note on bank default risk under government capital injection coinciding with high future loss expectation
Authors:	Lin, Jyh-horng;Chang, Chuen-Ping;Lin, Hsiao-Ning
Contributors:	淡江大學國際企業學系
Keywords:	government capital injection;adverse signal;interest margin;bank failure;barrier
Date:	2013-07-08
Issue Date:	2013-07-22 14:00:26 (UTC+8)
Publisher:	Abingdon: Routledge
Abstract:	This article proposes a framework for bank default risk measure under government capital injection explicitly coinciding with an adverse signal that a rescued bank is expected to have significant future losses. A bank facing a serious problem of early closure may have a strong incentive to participate in a government assistance programme. Recipients of government capital injections are encouraged to make additional loans at a reduced margin, and then increase the default risk in the bank's equity returns. These results may be due to the conflicting goals of the government's capital injection programme for bank recapitalization and bank lending.
Relation:	Applied Economics Letters 20(15), pp.1368-1373
DOI:	10.1080/13504851.2013.810326
Appears in Collections:	[Graduate Institute & Department of International Business] Journal Article

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