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Bailout Policy against Financial Intermediation Failures

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  • Dmitri Vinogradov

    (Alfred Weber Institute, Heidelberg University, Germany)

Abstract

Asymmetry in views of depositors and bankers can generate failures of financial intermediation in linking creditors and borrowers, and/or result in excessively high interest rates. Instead of considering asymmetry in assessment of the banks' solvency, this paper focuses on asymmetry in views as to whether an insolvent bank will be liquidated or let to continue. Bailout policy has two effects in this respect: first, an insurance effect, which lowers market interest rates, and secondly, an announcement effect, which rules the asymmetry in beliefs out. The paper was presented at the 21st Symposium on Banking and Monetary Economics, Nice, 2004

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File URL: http://128.118.178.162/eps/fin/papers/0506/0506003.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0506003.

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Length: 32 pages
Date of creation: 07 Jun 2005
Date of revision:
Handle: RePEc:wpa:wuwpfi:0506003

Note: Type of Document - pdf; pages: 32
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Web page: http://128.118.178.162

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Keywords: financial intermediation; limited liability; bailout policy;

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  1. Dmitri Vinogradov, 2003. "Macroeconomic evolution after a shock: the role for financial intermediation," Macroeconomics 0310007, EconWPA.
  2. Jenny Corbett & Janet Mitchell, 2000. "Banking crises and bank rescues: the effect of reputation," Proceedings, Federal Reserve Bank of Cleveland, pages 474-517.
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