Danske krisehåndteringsmodeller og begrænsning af moral hazard

Niels Larsen & Jacob E. Serritzlew

Student thesis: Master thesis

Abstract

The thesis will mainly focus on, how bank regulation can secure a stabile and effective capital-market and how to minimize the negative effects of moral hazard as well. The thesis will analyze the Danish crisis intervention models for the banking sector and how these initiatives are able to limit moral hazard. It has been partly concluded that the Credit Package and the Liquidation Package would be most effective to deal with the negative effects of moral hazard. The credit package combined with the possibility of convertible loan, gives the state a possible future upside. In addition to this, the state will set a high loan rate based on the market rate, cf. The Bagehot rule. If necessary, the state can convert the capital into shares. The Liquidation Package has proven useful to deal with the theory of too-big-to fail and containing moral hazard, but the international mistrust has proved it inadequate due to the funding problems for the banks as well as cost for society. The thesis also concludes that increased regulation is not the answer if legislator wants to limit moral hazard. Due to the fact that banking breakdowns happens because of lack of compliance with current regulation, an increased regulation will simply create more potential offences. Furthermore, the thesis has specified the current model for convertible loans. During a financial crisis, the state should lend unlimited and freely due to the fact, that banks seems to limit the lending between each other. Therefore, the state should follow the Bagehot rule by setting a high loan rate. This will limit the return of equity in banks, but the loan rate should be based on the marked rate. In addition to this, states should charge a risk premium for saving distressed banks, in accordance with the market economy investor principle. The thesis have analyzed the international tendencies and mainly concentrated on the Commission’s proposal for a European Common framework of rules and powers to help EU countries intervene in distressed banks as well as the common framework of BIS. The thesis has stated that convertible loan is a future model to intervene in banks who struggle according to the EU and BIS framework. In conclusion, the model of convertible loan is compatible with the Kaldor-Hicks criterion.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2012
Number of pages127