Liquidity provision vs. deposit insurance: preventing bank panics without moral hazard
AbstractIn this paper I ask whether a central bank policy of providing liquidity to banks during panics can prevent bank runs without causing moral hazard. This kind of policy has been widely advocated, most notably by Bagehot (1873). I show a particular central bank liquidity provision policy can prevent bank panics without moral hazard problems. I also show that a deposit insurance policy, while preventing runs, can create moral hazard problems. Copyright Springer-Verlag Berlin/Heidelberg 2006
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Volume (Year): 28 (2006)
Issue (Month): 1 (05)
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- Antoine Martin, 2001. "Liquidity provision vs. deposit insurance : preventing bank panics without moral hazard?," Research Working Paper RWP 01-05, Federal Reserve Bank of Kansas City.
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