The impact of public guarantees on bank risk taking: evidence from a natural experiment

In 2001, government guarantees for savings banks in Germany were removed following a law suit. We use this natural experiment to examine the effect of government guarantees on bank risk taking, using a large data set of matched bank/borrower information. The results suggest that banks whose government guarantee was removed reduced credit risk by cutting off the riskiest borrowers from credit. At the same time, the banks also increased interest rates on their remaining borrowers. The effects are economically large: the Z-Score of average borrowers increased by 7.5% and the average loan size declined by 17.2%. Remaining borrowers paid 46 basis points higher interest rates, despite their higher quality. Using a difference-in-differences approach we show that the effect is larger for banks that ex ante benefited more from the guarantee and that none of these effects are present in a control group of German banks to whom the guarantee was not applicable. Furthermore, savings banks adjusted their liabilities away from risk-sensitive debt instruments after the removal of the guarantee, while we do not observe this for the control group. We also document in an event study that yield spreads of savings banks’ bonds increased significantly right after the announcement of the decision to remove guarantees, while the yield spread of a sample of bonds issued by the control group remained unchanged. The results suggest that public guarantees may be associated with substantial moral hazard effects. JEL Classification: G21, G28, G32banking, Credit risk, market discipline, Moral Hazard, public guarantees

XMM-Newton Detection of Hot Gas in the Eskimo Nebula: Shocked Stellar Wind or Collimated Outflows?

The Eskimo Nebula (NGC 2392) is a double-shell planetary nebula (PN) known for the exceptionally large expansion velocity of its inner shell, ~90 km/s, and the existence of a fast bipolar outflow with a line-of-sight expansion velocity approaching 200 km/s. We have obtained XMM-Newton observations of the Eskimo and detected diffuse X-ray emission within its inner shell. The X-ray spectra suggest thin plasma emission with a temperature of ~2x10^6 K and an X-ray luminosity of L_X = (2.6+/-1.0)x10^31 (d/1150 pc)^2 ergs/s, where d is the distance in parsecs. The diffuse X-ray emission shows noticeably different spatial distributions between the 0.2-0.65 keV and 0.65-2.0 keV bands. High-resolution X-ray images of the Eskimo are needed to determine whether its diffuse X-ray emission originates from shocked fast wind or bipolar outflows.Comment: 4 pages, 2 figures, accepted in Astronomy and Astrophysics Letter

Star Formation in the LMC: Gravitational Instability and Dynamical Triggering

Evidence for triggered star formation is difficult to establish because energy feedback from massive stars tend to erase the interstellar conditions that led to the star formation. Young stellar objects (YSOs) mark sites of {\it current} star formation whose ambient conditions have not been significantly altered. Spitzer observations of the Large Magellanic Cloud (LMC) effectively reveal massive YSOs. The inventory of massive YSOs, in conjunction with surveys of interstellar medium, allows us to examine the conditions for star formation: spontaneous or triggered. We examine the relationship between star formation and gravitational instability on a global scale, and we present evidence of triggered star formation on local scales in the LMC.Comment: 6 pages, 6 figures, IAU Symposium 237, Triggered Star Formation in a Turbulent Medium, eds. Elmegreen and Palou