Moral hazard and optimal subsidiary structure for financial institutions

Deskripsi

Banks and related financial institutions often have two separate subsidiaries that make loans of similar type but differing risk, for example, a bank and a finance company, or a "good bank/bad bank" structure. Such "bipartite" structures may prevent risk shifting, in which banks misuse their flexibility in choosing and monitoring loans to exploit their debt holders. By "insulating" safer loans from riskier loans, a bipartite structure reduces risk-shifting incentives in the safer subsidiary..Printed Journal