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Bank runs, political distortions and contagion

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  • Victor Vaugirard

    (TEAM-CNRS University of Paris at Sorbonne)

Abstract

This 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.

Suggested Citation

  • Victor Vaugirard, 2004. "Bank runs, political distortions and contagion," Economics Bulletin, AccessEcon, vol. 6(18), pages 1-10.
    • Handle: RePEc:ebl:ecbull:eb-04f30009
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G2 - Financial Economics - - Financial Institutions and Services

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