In critical times, support is necessary to avoid bank failures and the significant associated costs to society. But according to Dr Eliza Wu, government support has led to excessive lending by banks, particularly to home buyers and property investors leading to high property prices in major capital cities.
This research seeks to understand how the relationship between governments support and capital standards can be improved, finding the perfect balance between financial stability and financial flexibility.
With government backing, the banks have been able to access more deposit funding, lower their cost of funds, and hence are more inclined to lend in larger volumes and at cheaper rates in order to increase their market share. This in turn, has forced other finance providers to follow suit just to remain competitive.
Khan MS, Scheule H and Wu E 2017 'Funding liquidity and bank risk taking', Journal of Banking and Finance, vol.82, pp. 203-16