Abstract

This study investigates the impact of the enactment of bail-in regimes in 2016 in Indonesia on bank owners' propping behavior. Based on Indonesian banking data for the period 2011–2020, we use the difference-in-differences method to examine whether related party transactions substantially increase or decrease after the introduction of bail-in as an indicator of propping. We find that while the requirement for sufficient capital allocated to shock absorbance increases, bank owners may provide capital via related deposits. These deposits are typically beneficial to bank stability, increase liquidity, and can act as a propping channel. However, the deposits are also more exposed to risks, and consequently decrease