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The impact of consolidation and safety-net support on Canadian, US and UK banks: 1893–1992

Authors
Journal
Journal of Banking & Finance
0378-4266
Publisher
Elsevier
Publication Date
Volume
23
Identifiers
DOI: 10.1016/s0378-4266(98)00080-6
Keywords
  • Bank Consolidation
  • Safety-Net Support
  • Bank Capital Structure

Abstract

Abstract This study investigates bank consolidation and safety-net support provision in Canada, the UK and the US over a 100-year historical period, and the impact of these policy variables on bank capital and risk-taking choices. The study finds that consolidation and strengthened safety nets have largely supplanted the historical role of high bank capital levels in providing protection to risk-adverse depositors. Furthermore, despite strengthened safety-net guarantees, the study finds that bank asset-risk choices in the 1980s are comparable to those observed in the 1890s, while bank equity volatilities have shown approximately a 10-fold increase over this period. Finally, the study finds that bank capital ratios are as asset-risk sensitive in the 1980s as those in the 1890s, perhaps reflecting residual market discipline or regulatory moral-suasion effects.

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