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Annals of Finance

, Volume 6, Issue 4, pp 455–473 | Cite as

On dividend restrictions and the collapse of the interbank market

  • C. A. E. Goodhart
  • M. U. Peiris
  • D. P. Tsomocos
  • A. P. Vardoulakis
Research Article

Abstract

Until recently, financial services regulation remained largely segmented along national lines. The integration of financial markets, however, calls for a systematic and coherent approach to regulation. This paper studies the effect of market based regulation on the proper functioning of the interbank market. Specifically, we argue that restrictions on the payout of dividends by banks can reduce their expected default on (interbank) loans, stimulate trade in this market and improve the welfare of consumers.

Keywords

Dividend restriction Interbank market Default Liquidity Regulation 

JEL Classification

D52 E4 E5 G11 G21 

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Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  • C. A. E. Goodhart
    • 1
  • M. U. Peiris
    • 2
  • D. P. Tsomocos
    • 3
  • A. P. Vardoulakis
    • 3
  1. 1.Financial Markets GroupLondon School of EconomicsLondonUK
  2. 2.University College and Saïd Business SchoolUniversity of OxfordOxfordUK
  3. 3.St. Edmund Hall and Saïd Business SchoolUniversity of OxfordOxfordUK

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