Liquidity, moral hazard and bank crises
AbstractBank crises, by interrupting liquidity provision, have been viewed as resulting in welfare losses. In a model of banking with moral hazard, we show that second best bank contracts that improve on autarky ex-ante require costly crises to occur with positive probability at the interim stage. When bank payo¤s are partially appropriable, either directly via imposition of …nes or indirectly by the use of bank equity as a collateral, we argue that an appropriately designed ex-ante regime of policy intervention involving conditional monitoring can prevent bank crises.
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Date of creation: 2010
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bank runs; contagion; moral hazard; liquidity; random; contracts; monitoring.;
Other versions of this item:
- Chatterji, S. & Ghosal, S., 2013. "Liquidity, moral hazard and bank crises," SIRE Discussion Papers 2013-85, Scottish Institute for Research in Economics (SIRE).
- S.Chatterji & S.Ghosal, 2013. "Liquidity, moral hazard and bank crises," Working Papers 2013_21, Business School - Economics, University of Glasgow.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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