Monitoring, Liquidity and Financial Crises
AbstractThis paper analyzes central bank policies on the monitoring of banks in distress in which liquidity provisions are conditional on performance when a bad shock occurs. A sequential game model is used to analyze two policies: the first one in which the central bank acts with discretion and the second in which the optimal monitoring policy rule is made public. The results show that banks exert less effort and take higher risks with a discretionary monitoring policy. With public information about monitoring rules, there is more central bank monitoring and less need to provide emergency funding. Public information about monitoring resolves the multiple equilibria that arise with discretion in fact, a unique equilibrium emerges in which the probability of a banking crisis is reduced.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 20501.
Date of creation: 10 Mar 2008
Date of revision: 01 Oct 2009
monitoring liquidity provision financial crises conditionality;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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.:
- X. Freixas, 2000.
"Optimal Bail Out Policy, Conditionality and Constructive Ambiguity,"
DNB Staff Reports (discontinued)
49, Netherlands Central Bank.
- Xavier Freixas, 1999. "Optimal bail out policy, conditionality and constructive ambiguity," Economics Working Papers 400, Department of Economics and Business, Universitat Pompeu Fabra.
- Eduardo Levy Yeyati & Tito Cordella, 1999. "Bank Bailouts," IMF Working Papers 99/106, International Monetary Fund.
- Acharya, Viral V & Yorulmazer, Tanju, 2004.
"Too Many to Fail - An Analysis of Time Inconsistency in Bank Closure Policies,"
CEPR Discussion Papers
4778, C.E.P.R. Discussion Papers.
- Acharya, Viral V. & Yorulmazer, Tanju, 2007. "Too many to fail--An analysis of time-inconsistency in bank closure policies," Journal of Financial Intermediation, Elsevier, vol. 16(1), pages 1-31, January.
- Viral Acharya & Tanju Yorulmazer, 2007. "Too many to fail - an analysis of time-inconsistency in bank closure policies," Bank of England working papers 319, Bank of England.
- Gasbarro, Dominic & Sadguna, I Gde Made & Zumwalt, J Kenton, 2002. " The Changing Relationship Between CAMEL Ratings and Bank Soundness during the Indonesian Banking Crisis," Review of Quantitative Finance and Accounting, Springer, vol. 19(3), pages 247-60, November.
- Viral V. Acharya & Tanju Yorulmazer, 2008.
"Cash-in-the-Market Pricing and Optimal Resolution of Bank Failures,"
Review of Financial Studies,
Society for Financial Studies, vol. 21(6), pages 2705-2742, November.
- Viral Acharya & Tanju Yorulmazer, 2007. "Cash-in-the-market pricing and optimal resolution of bank failures," Bank of England working papers 328, Bank of England.
- Goodhart, Charles A.E. & Huang, Haizhou, 2005. "The lender of last resort," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1059-1082, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.