Financial safety nets, bailouts and moral hazard
AbstractThe paper argues that policymakers bail out banks with financial problems to avoid the costs of financial repression. After financial liberalization and when risk is verifiable, in some circumstances policymakers can commit to policies that discipline banks ex-ante and ex-post, by providing bailout to conservative banks and threatening the takeover of risky banks. When these policies are time consistent, regulatory policies to deal with moral hazard ex-ante, like for example prudential regulation, become redundant and policymakers refrain from implementing them.
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Bibliographic InfoPaper provided by Doctoral School of Economics, Sapienza University of Rome in its series Working Papers with number 8.
Length: 38 pages
Date of creation: 2010
Date of revision: 2010
Contact details of provider:
Web page: http://phdschool-economics.dse.uniroma1.it/website/
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Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
- NEP-BAN-2010-04-17 (Banking)
- NEP-CTA-2010-04-17 (Contract Theory & Applications)
- NEP-REG-2010-04-17 (Regulation)
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.:
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"The twin crises: The causes of banking and balance of payments problems,"
14081, University Library of Munich, Germany.
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IMF Working Papers
99/106, International Monetary Fund.
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NBER Working Papers
9158, National Bureau of Economic Research, Inc.
- Philippe Aghion, Patrick Bolton & Steven Fries, 1999. "Optimal Design of Bank Bailouts: The Case of Transition Economies," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(1), pages 51-, March.
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