Policies For Banking Crises: A Theoretical Framework
AbstractThis paper analyzes the effects on ex ante risk-shifting incentives and ex post fiscal costs of three policies that are frequently used in dealing with banking crises, namely, forbearance from prudential regulations, extension of blanket deposit guarantees, and provision of unrestricted liquidity support. In the context of a simple model of information-based bank runs, where banks are funded with both insured and uninsured deposits, the paper shows that the expectation of implementation of any of these policies leads to a reduction in the interest rate of uninsured deposits and in the banks incentives to take risk, but increases the expected fiscal costs of the crises.
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Bibliographic InfoPaper provided by CEMFI in its series Working Papers with number wp2004_0418.
Date of creation: Sep 2004
Date of revision:
Banking crises; bank runs; bank supervision; risk-shifting incentives; forbearance; deposit insurance; lender of last resort.;
Other versions of this item:
- Repullo, Rafael, 2004. "Policies for Banking Crises: A Theoretical Framework," CEPR Discussion Papers 4727, C.E.P.R. Discussion Papers.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-10-18 (All new papers)
- NEP-LAM-2004-10-18 (Central & South America)
- NEP-MAC-2004-10-18 (Macroeconomics)
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