Bank runs, political distortions and contagion
AbstractThis paper highlights the spread of banking panics across countries, as the public reassesses governments' propensity to bailouts. Policymakers decide whether to rescue a failing banking sector, by weighing the costs of a collapse against the costs associated with raising taxes to finance a bailout package. The former involve social costs for the society and personal costs for policymakers. In addition, they have an informational advantage over creditors regarding the costs of bank liquidation. A crisis in a country leads lenders to reexamine policymakers'' willingness to intervene in other countries, which eventually makes their banks more vulnerable to self-fulfilling depositors'' runs.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 6 (2004)
Issue (Month): 18 ()
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Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- G2 - Financial Economics - - Financial Institutions and Services
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