Loan guarantees represent a form of government intervention to support bank lending. However, their use raises concerns … as to their effect on bank risk-taking incentives. In a model of financial fragility that incorporates bank capital and a … bank incentive problem, we show that loan guarantees reduce depositor runs and improve bank underwriting standards, except …

bank when its partner bank fails. We investigate how capital constraints affect the choice of the healthy bank to takeover … or liquidate the exposure held jointly with the failing bank, and how the bank's ex ante optimal capital holding and … stock rather than preferred equity injection dilutes existing shareholder interests and gives the bank a greater incentive …

This paper examines bank risk and its main determinants when gauged at various bank threshold variables. We apply the … threshold effects in the relationship between bank risk and bank characteristics. Specifically, the positive impact of equity on … bank stability is more prominent for banks below the thresholds of equity, liquidity, or profitability. Banks’ government …