eprintid: 1807
rev_number: 6
eprint_status: archive
userid: 6
dir: disk0/00/00/18/07
datestamp: 2013-09-27 12:56:57
lastmod: 2013-09-27 12:56:57
status_changed: 2013-09-27 12:56:57
type: book_section
metadata_visibility: show
creators_name: Regis, Luca
creators_id: luca.regis@imtlucca.it
title: Good and bad banks
ispublished: pub
subjects: HB
divisions: EIC
full_text_status: none
keywords: Capital structure; good/bad banks; intra-group guarantees; financial groups
abstract: 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.
date: 2012
publisher: Springer
pagerange: 359-366
id_number: 10.1007/978-88-470-2342-0_42
refereed: TRUE
isbn: 978-88-470-2341-3
book_title:  Mathematical and Statistical Methods for Actuarial Sciences and Finance  Mathematical and Statistical Methods for Actuarial Sciences and Finance
official_url: http://dx.doi.org/10.1007/978-88-470-2342-0_42
citation:   Regis, Luca  Good and bad banks.   In:   Mathematical and Statistical Methods for Actuarial Sciences and Finance Mathematical and Statistical Methods for Actuarial Sciences and Finance.   Springer, pp. 359-366.  ISBN 978-88-470-2341-3      (2012)