Advanced Search
MyIDEAS: Login to save this article or follow this journal

Taking the moral hazard out of banking: the next fundamental step in financial reform

Contents:

Author Info

  • Rainer Masera

    ()
    (University G. Marconi)

Registered author(s):

    Abstract

    The path between financial meltdown and moral hazard in banking is, at best, narrow and impervious. During the financial crisis, public support became the standard response to save the banks in difficulty, heightening and broadening the moral hazard issue: subordinated/senior debt holders and large depositors were bailed out and equity holders were partially sheltered. In the Eurozone, the implicit promise to bail-out governments in difficulty has encouraged SIFIs and other financial operators to speculate on the yield differential between sovereigns and the ECB money market interest rates. The policy framework proposed here is two-pronged: the EFSF should evolve to permit more flexible and wide-ranging interventions, and be able to manage sovereign debt restructuring; with respect to SIFIs, very early corporate, market and supervisory responses are suggested. Intervention of supervisory authorities with mandatory (special) powers would occur before the threshold of non-viability and, on a gone-concern basis, in terms of a European resolution procedure.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9415/9310
    Download Restriction: no

    Bibliographic Info

    Article provided by Economia civile in its journal PSL Quarterly Review.

    Volume (Year): 64 (2011)
    Issue (Month): 257 ()
    Pages: 105-142

    as in new window
    Handle: RePEc:psl:pslqrr:2011:22

    Contact details of provider:
    Web page: http://www.economiacivile.it

    Order Information:
    Web: http://www.pslquarterlyreview.info

    Related research

    Keywords: financial crisis; SIFIs; sovereign risk; moral hazard; resolution procedure;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Christian Capuano, 2008. "The Option-Ipod. the Probability of Default Implied by Option Prices Basedon Entropy," IMF Working Papers 08/194, International Monetary Fund.
    2. Akerlof, George A., 2001. "Behavioral Macroeconomics and Macroeconomic Behavior," Nobel Prize in Economics documents 2001-4, Nobel Prize Committee.
    3. Kenneth French & Martin Baily & John Campbell & John Cochrane & Douglas Diamond & Darrell Duffie & Anil Kashyap & Frederic Mishkin & Raghuram Rajan & David Scharfstein & Robert Shiller & Hyun Song Shi, 2010. "The Squam Lake Report: Fixing the Financial System," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(3), pages 8-21.
    4. Lastra, Rosa Maria, 2006. "Legal Foundations of International Monetary Stability," OUP Catalogue, Oxford University Press, number 9780199269341, September.
    5. Alessandro Roncaglia, 2011. "A multi-faceted financial crisis," PSL Quarterly Review, Economia civile, vol. 64(256), pages 3-5.
    6. Brenda González-Hermosillo & Heiko Hesse, 2009. "Global Market Conditions and Systemic Risk," IMF Working Papers 09/230, International Monetary Fund.
    7. Acharya, Viral V., 2009. "A Theory of Systemic Risk and Design of Prudential Bank Regulation," CEPR Discussion Papers 7164, C.E.P.R. Discussion Papers.
    8. C. H. Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," BIS Working Papers 70, Bank for International Settlements.
    9. Hutchison, Michael & McDill, Kathleen, 1999. "Are All Banking Crises Alike? The Japanese Experience in International Comparison," Journal of the Japanese and International Economies, Elsevier, vol. 13(3), pages 155-180, September.
    10. Nathaniel Frank & Heiko Hesse, 2009. "Financial Spillovers to Emerging Markets During the Global Financial Crisis," IMF Working Papers 09/104, International Monetary Fund.
    11. Charles Goodhart & Miguel Segoviano, 2009. "Banking Stability Measures," FMG Discussion Papers dp627, Financial Markets Group.
    12. Viral V. Acharya & Tanju Yorulmazer, 2008. "Information Contagion and Bank Herding," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 215-231, 02.
    13. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
    14. Heiko Hesse & Nathaniel Frank & Brenda González-Hermosillo, 2008. "Transmission of Liquidity Shocks," IMF Working Papers 08/200, International Monetary Fund.
    15. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    16. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    17. Asli Demirgüç-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
    18. David M. Geltner, 1993. "Estimating Market Values from Appraised Values without Assuming an Efficient Market," Journal of Real Estate Research, American Real Estate Society, vol. 8(3), pages 325-346.
    19. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    20. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    21. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
    22. Dungey, Mardi & Fry, Renee & Gonzalez-Hermosillo, Brenda & Martin, Vance, 2006. "Contagion in international bond markets during the Russian and the LTCM crises," Journal of Financial Stability, Elsevier, vol. 2(1), pages 1-27, April.
    23. Joseph Gyourko & Donald B. Keim, . "What Does the Stock Market Tell Us About Real Estate Returns? (Revision of 18-91) (Reprint 030)," Rodney L. White Center for Financial Research Working Papers 11-92, Wharton School Rodney L. White Center for Financial Research.
    24. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
    25. S. Michael Giliberto, 1990. "Equity Real Estate Investment Trusts and Real Estate Returns," Journal of Real Estate Research, American Real Estate Society, vol. 5(2), pages 259-264.
    26. Helmut Elsinger & Alfred Lehar & Martin Summer, 2006. "Systemically important banks: an analysis for the European banking system," International Economics and Economic Policy, Springer, vol. 3(1), pages 73-89, April.
    27. Joseph Gyourko & Donald B. Keim, 1992. "What Does the Stock Market Tell Us About Real Estate Returns?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(3), pages 457-485.
    28. William R. White, 2003. "International financial crises: prevention, management and resolution," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(III), pages 299-309, September.
    29. Christian Wolff & Theo Vermaelen & George Pennacchi, 2010. "Contingent Capital: The Case for COERCs," LSF Research Working Paper Series 10-08, Luxembourg School of Finance, University of Luxembourg.
    30. Dornbusch, Rudiger & Park, Yung Chul & Claessens, Stijn, 2000. "Contagion: Understanding How It Spreads," World Bank Research Observer, World Bank Group, vol. 15(2), pages 177-97, August.
    31. Robert C. Merton, 1995. "A Functional Perspective of Financial Intermediation," Financial Management, Financial Management Association, vol. 24(2), Summer.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:psl:pslqrr:2011:22. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carlo D'Ippoliti).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.