The Funds Concentration Effect and Discriminatory Bailout
AbstractIn the presence of macroeconomic shocks severe enough to threaten the liquidity or solvency of the banking system, the regulator can rely on the funds concentration effect to save long-term investment projects. Some banks are forced into bankruptcy with the result that other banks obtain more new funds and remain solvent. We investigate two different implementations of the funds concentration effect and the corresponding discriminatory bailout scheme: “random bailout“ and “bailout the big ones“. While the latter can be problematic in terms of stability, it is superior to the former in terms of welfare and credibility.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 591.
Date of creation: 2001
Date of revision:
financial intermediation; macroeconomic risk; banking regulation; discriminatory bailout; funds concentration; aggregate liquidity; consistent expectations;
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