SoleCRISTransition linkFrontpageTransition linkInstructionsTransition linkLogin Bank of Finland

A Peer-reviewed scientific articles/A1 Journal article (refereed), original research
This is the view page of publication. On this page you can view basic information of publication or go back on previous page using back-action on the bottom of the page. If you want to move to edit the information of publication, use the actions on the bottom of the page or continue using the system from menu.

Bailouts, franchise value and moral hazard in banking, Singapore Economic Review 3; 1 June (2018). Kauko, Karlo

Category A Peer-reviewed scientific articles
Sub-category A1 Journal article (refereed), original research
auki Internal authors
All authors as text Kauko, Karlo 
Number of authors
Status Published
Year of publication 2018 
Date 15.06.2018 
Name of article Bailouts, franchise value and moral hazard in banking 
Name of journal Singapore Economic Review
Volume of issue 63 
Number of issue 3; 1 June 
Pages 691-699 
Abstract Policy discussions are dominated by the view that governmental safety nets offered to banks cause moral hazard and encourage risk-taking. However, [Cordella, T and E Levy Yeyati (2003). Bank bailouts: moral hazard vs. value effect. Journal of Financial Intermediation, 12, 300–330.] proposed that government support offered during crises may increase bank franchise value, resulting in less risk-taking. This paper presents additional theoretical results on the franchise value effect. The franchise value effect can dominate over the moral hazard effect even when there are no specific crisis periods. The franchise value effect dominates if bank shareholders have a weak time preference and if the decision on the intensity of risk monitoring is a long-term choice.
Free text descriptor in English Franchise value; moral hazard; bailouts; banking 
JEL-codes G01; G21; G28; H81 
ISSN / e-ISSN 0217-5908 
auki Internet addresses
Additional information Available online 8 September 2015