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Government debt and banking fragility: the spreading of strategic uncertainty
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| Authors and Corporations: | , |
|---|---|
| Title: | Government debt and banking fragility: the spreading of strategic uncertainty/ Russell Cooper, Kalin Nikolov |
| Type of Resource: | E-Book |
| Language: | English |
| published: |
Frankfurt am Main, Germany
European Central Bank
[2018]
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| Series: |
Europäische Zentralbank: Working paper series ; no 2195 (November 2018)
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| Source: | Verbunddaten SWB Lizenzfreie Online-Ressourcen |
| Abstract: | This paper studies the interaction of government debt and financial markets. This interaction, termed a "diabolic loop", is driven by government choice to bail out banks and the resulting incentives for banks to hold government debt rather than self-insure through equity buffers. We highlight the role of bank equity issuance in determining whether the "diabolic loop" is a Nash Equilibrium of the interaction between banks and the government. When equity is issued, no diabolic loop exists. In equilibrium, banks' rational expectations of a bailout ensure that no equity is issued and the sovereign-bank loop is operative. |
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| Physical Description: | 1 Online-Ressource (circa 66 Seiten); Illustrationen |
| ISBN: |
9789289933001
9289933003 |
| DOI: | 10.2866/888615 |