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A prudential paradox: The signal in (not) restricting bank dividends

Title	A prudential paradox: The signal in (not) restricting bank dividends
Author	Güntay, Levent, Jacewitz, S., Pogach, J.
Publication Date:	2022
Publication Place	- Wiley
Subject	Bank runs, Capital requirements, Dividends, Signaling
Type	Periodical
Language	English
Digital	Yes
Manuscript	No
Library:	Özyeğin University
Library Asset ID	0022-2879
Record ID	cce3a4f5-557d-4b3e-b599-935fb7a57c84
Library Location	International Finance
Date	2022
Sample Text	By restricting dividends in the weakest banks, prudential regulators counterintuitively induce more capital payouts in marginal banks. The potential for bank runs exacerbates the incentive to signal strength through dividend payments. Regulatory restrictions on those payments can be used to achieve the first-best outcome, but only if the prevailing capital requirements are sufficiently high. In a crisis, the optimal dividend policy is more restrictive, since it allows the weak but solvent banks to pool with the strong. Finally, we show that the optimal release of regulatory bank information depends critically on the regulator's information and dividend restriction policies.
DOI	10.1111/jmcb.12995

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Özyeğin University

A prudential paradox: The signal in (not) restricting bank dividends

Author Güntay, Levent, Jacewitz, S., Pogach, J.

Publication Date 2022

Publication Place - Wiley

Subject Bank runs, Capital requirements, Dividends, Signaling

Type Periodical

Language English

Digital Yes

Manuscript No

Library Özyeğin University

Library Asset ID 0022-2879

Record ID cce3a4f5-557d-4b3e-b599-935fb7a57c84

Library Location International Finance

Date 2022

Sample Text By restricting dividends in the weakest banks, prudential regulators counterintuitively induce more capital payouts in marginal banks. The potential for bank runs exacerbates the incentive to signal strength through dividend payments. Regulatory restrictions on those payments can be used to achieve the first-best outcome, but only if the prevailing capital requirements are sufficiently high. In a crisis, the optimal dividend policy is more restrictive, since it allows the weak but solvent banks to pool with the strong. Finally, we show that the optimal release of regulatory bank information depends critically on the regulator's information and dividend restriction policies.

DOI 10.1111/jmcb.12995