Izvorni znanstveni članak
https://doi.org/10.1080/1331677X.2022.2081233
Implicit government guarantees and bank risk
Ling Feng
Yingying Liu
Jie Fang
Sažetak
We develop a model on bank risk and implicit government guarantees.
This model concerns the willingness and capacity of implicit
government guarantees. Using the Option Pricing Theory, we
derive a mathematical formulation of maximizing the bank’s net
present value (NPV) with implicit government guarantees. Unlike
previous work, both the loan portfolio and the bank’s NPV are
regarded as a combination of options underlying the risky project.
We conduct comparative static analyses and numerical examples
to examine how implicit government guarantees and capital control
affect bank risk and its asset scale. The main insight of our
analysis is that implicit government guarantees have some unintended
consequences: (a) Inefficient and excessive risk taking
(including bank’s asset and overall risk); (b) Inefficient investment
if there is no binding capacity constraint. We show that it is
mainly due to the bank’s excessive reliance on contingent assets.
In addition, we demonstrate the ineffectiveness of capital constraint
on risk control under certain circumstances. Therefore, we
suggest that the gradual withdrawal of implicit government guarantees
should be accompanied by multiple combinations of regulatory
measures and proper institutional reform to avoid
risk surges.
Ključne riječi
Implicit government guarantees; bank risk; loan portfolios
Hrčak ID:
303773
URI
Datum izdavanja:
31.3.2023.
Posjeta: 198 *