# kaal:claim:2061166-010

**Claim.** Reliance on public bail-outs, unaccompanied by any threat that management, shareholders and creditors would share significant losses, created an asymmetric incentive for excessive risk taking by financial institutions.

**Type.** mechanism  **Support.** argued

**Holds when.**

- Germany and the United States during the height of the financial crisis
- where insolvency was not a credible threat

**Source quote.**

> The reliance on a public bail-out without the threat of any significant losses shared by management, shareholders and creditors may have created an asymmetric incentive for excessive risk taking by financial institutions.

**From.** Christoph K. Henkel, Wulf A. Kaal, *Contingent Capital in European Union Bank Restructuring* (2012), 3. The German Banking Reorganization Act of 2010, page 33

**Cite as.** Christoph K. Henkel, Wulf A. Kaal, Contingent Capital in European Union Bank Restructuring (2012). SSRN: https://ssrn.com/abstract=2061166

**Verify.** sha256 of source PDF `43625ea260d0fc045e86d3435df50c9d0ca4abf8542e6085a6165be6653b4a7b` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Henkel%20and%20Kaal%20-%202012%20-%20Contingent%20Capital%20in%20European%20Union%20Bank%20Restructuring.pdf

**Failure mode.** Bail-out expectation removes the loss threat and skews risk incentives  (family: moral-hazard-and-bailout-expectation)

**Topics.** risk-and-incentives, systemic-risk

**Keywords.** moral-hazard, bailouts, excessive-risk-taking, too-big-to-fail, loss-sharing

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