Banking Risks around the World: The Implicit Safety Net Subsidy Approach (original) (raw)

Laeven calculates gross safety net subsidies for a large findings suggest that the moral hazard behavior of a bank sample of banks in 12 countries to assess the relationship depends on its institutional environment and its between the risk-taking behavior of banks and certain corporate governance structure. bank characteristics. He finds that gross safety net Laeven also presents a matrix that shows estimates of subsidies are higher for banks that have concentrated safety net subsidies for a range of given combinations of ownership, that are affiliated with a business group, that equity volatilities and equity-to-deposit ratios. These are small, or that have high credit growth, and for banks figures could be used as input to an early warning system in countries with low GDP per capita, high inflation, or for both individual and systemic banking problems. poor quality and enforcement of the legal system. These This paper-a product of the Financial Sector Strategy and Policy Department-is part of a larger effort in the department to study the performance and risks of banks. Copies of the paper are available free from the World Bank,