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Oxford Journals Contact Us My Basket My Account Review of Corporate Finance Studies About This Journal Contact This Journal Subscriptions View Current Issue (Volume 2 Issue 1 March 2013) Archive Search Oxford Journals EconomicsSocial Sciences Review of Corporate Finance Studies Volume 2 Issue 1 Pp. 29-61. Bank Bailout Menus Sudipto Bhattacharya

London School of Economics, CEPR Kjell G. Nyborg

University of Zurich, Swiss Finance Institute, CEPR Send correspondence to Kjell G. Nyborg, Department of Banking and Finance, University of Zurich, Plattenstrasse 14, 8032 Zurich, Switzerland. E-mail: kjell.nyborg{at}bf.uzh.ch. Abstract We study bailouts of banks that suffer from debt overhang problems and have private information about the quality of their assets-in-place and new investment opportunities. Menus of bailout plans are used as a screening device. Constrained optimality involves overcapitalization and nonlinear pricing, with worse types choosing larger bailouts. When investment opportunities follow the assets, we derive an equivalence result between equity injections and asset buyouts. The larger capital outlay under asset buyouts can be offset by borrowing against the assets. If investment opportunities follow the bank, equity injections offer more upside to the bailout agency. This may reduce or enhance efficiency, depending on whether screening intensity is needed mostly on assets-in-place or new investments. (JEL G28, G01, D82)

© The Author 2013. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com. « Previous | Next Article » Table of Contents This Article Review of Corporate Finance Studies (2013) 2 (1): 29-61. doi: 10.1093/rcfs/cft001 First published online: February 3, 2013 » Abstract Full Text (HTML) Full Text (PDF) All Versions of this Article: cft001v1 2/1/29 most recent Classifications Articles Services Alert me when cited Alert me if corrected Find similar articles Similar articles in Web of Science Add to my archive Download citation Request Permissions Citing Articles Load citing article information Citing articles via CrossRef Citing articles via Scopus Citing articles via Web of Science Google Scholar Articles by Bhattacharya, S. Articles by Nyborg, K. G. Related Content Load related web page information Share Email this article CiteULike Delicious Facebook Google+ Mendeley Twitter What's this?

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