The presence of the financial safety net can affect the behaviour of bank stock prices. Explicit provisions such as deposit insurance and the access to liquidity facilities by the central bank, as well as the perceived availability of state support in times of distress, can affect market discipline by numbing creditors’ sensitivity to risk-taking by banks. Besides lowering the cost of debt financing, this also means that shareholders of banks that are more likely to receive support may require a lower return on their investment, in line with the reduced risk of the bank failing. In order to assess.
