## When Gambling for Resurrection is Too Risky

_IMF Working Papers, August 1, 2017_

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## Bibliographic details
- Authors: Divya Kirti
- Published: August 1, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484312667.001

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### Main findings
- Insurers in the United States that were hit hard by the crisis reduced risk taking relative to insurers not hit as hard by the crisis.
- Capital requirements alone do not explain this risk reduction: insurers hit hard reduced risk within assets with identical regulatory treatment.
- State level US insurance regulation makes it unlikely this risk reduction was driven by moral suasion.
- Applying the same approach to banks yields similar results: other financial institutions also reduce risk after large shocks.
- The results suggest that, at least in some circumstances, franchise value can dominate, making gambling for resurrection too risky.

### Evidence and approach
- Comparative analysis between insurers "hit hard" by the crisis and insurers "not hit as hard."
- Within-asset comparisons to control for identical regulatory treatment.
- Extension of the approach to banks, which produces similar risk-reduction findings.

### Policy implications and interpretation
- Franchise value considerations can lead financial institutions to reduce risk following large negative shocks rather than engage in risk shifting or “gambling for resurrection.”
- Regulatory explanations such as capital requirements do not fully account for observed post-shock risk-reduction behavior among insurers.
- State-level regulatory structures in the US reduce the likelihood that moral suasion by regulators was the primary driver of the observed behavior.

### Key statistics and publication metadata
- Pages: 59
- Volume: 2017
- Issue: 180
- Series: Working Paper No. 2017/180
- DOI: https://doi.org/10.5089/9781484312667.001
- Stock No: WPIEA2017180
- ISBN: 9781484312667
- ISSN: 1018-5941
- Publication date: August 1, 2017
- Author: Divya Kirti

### Subject and keywords
- Subject: Banking, Bonds, Corporate bonds, Credit risk, Financial institutions, Financial regulation and supervision, Insurance, Insurance companies
- Keywords: banking, Bonds, bonds insurer, capital requirement, Corporate bonds, Credit risk, fair value, financial frictions, franchise value, Insurance, Insurance companies, interest-rate risk, issued bond, Life insurance, risk reduction, risk shifting, WP, yield to maturity

*Divya Kirti. "When Gambling for Resurrection is Too Risky", IMF Working Papers 2017, 180 (2017).*

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_Source: https://www.imf.org/en/publications/wp/issues/2017/08/01/when-gambling-for-resurrection-is-too-risky-45085_