Current methods of failed bank resolution are unnecessarily expensive for taxpayers and impose substantial costs on borrowers at failed banks. This situation is due to distorted incentives imbedded in the standard contract between the government and acquirers of failed banks, which result in more loan foreclosures than if the loan were held by a well-capitalized bank. This paper proposes a modification to the standard contract in the form of a transferable put, which would introduce market-based incentives to the disposition of failed bank assets.
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Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number
92-5.
Length: Date of creation: 1992 Date of revision: Publication status: Published in AREUEA 22, no. 1 (Spring 1994): 135-47. Handle: RePEc:fip:fedbwp:92-5
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