BIS paper flags spillovers from bank dividends
Bank capital has attributes of “a public good”
Because bank balance sheets interlock, the equity position of one bank can affect the entire system, according to models laid out in a Bank for International Settlements (BIS) working paper, published today (September 13).
Bank capital and dividend externalities by Viral Acharya, Hanh Le and Hyun Song Shin models a situation where bank dividends impose externalities by making the whole system less resilient. By contrast, raising equity is "a public good", but banks cannot gain the full benefits
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