TY  - CHAP
T2  -  Mathematical and Statistical Methods for Actuarial Sciences and Finance  Mathematical and Statistical Methods for Actuarial Sciences and Finance
EP  - 366
ID  - eprints1807
UR  - http://dx.doi.org/10.1007/978-88-470-2342-0_42
KW  - Capital structure; good/bad banks; intra-group guarantees; financial groups
Y1  - 2012///
TI  - Good and bad banks
AV  - none
SP  - 359
N2  - In the recent financial crisis, reorganizations of distressed financial institutions following the good bank and bad bank model were discussed. In the context of a structural framework and under perfect information, we analyze endogenous capital structure choices of an arrangement constituted by a large regulated unit which manages the more secure assets of a bank and a smaller division - possibly unregulated - which gathers the more risky and volatile ones. We question whether such an arrangement is a priori optimal and whether financial institutions have private incentives to set up different risk-classes of assets in separate entities. We investigate the effect of intra-group guarantees on optimal leverage and expected default costs. Numerical results show that these guarantees can enhance group value and limit default costs when the firm separates its more secure from its more risky assets in regulated entities.
PB  - Springer
SN  - 978-88-470-2341-3
A1  - Regis, Luca
ER  -