Capital preservation measures create moral hazard: Bundesbank research

- Central Banking Newsdesk
- 30 Aug 2011

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In a paper titled Bank Bailouts, Interventions and Moral Hazard, the Deutsche Bundesbank shows that capital preservation measures create moral hazard in banks.

In the discussion paper, released on Monday, Lammertjan Dam and Michael Koetter, the paper's authors, set out to test if safety nets create moral hazard in the banking industry.

Using a simultaneous structural two-equations model that specifies the probability of a bailout and banks' risk-taking, the researchers identify the effect of

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