Bailout Policy against Financial Intermediation Failures
AbstractAsymmetry 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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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0506003.
Length: 32 pages
Date of creation: 07 Jun 2005
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financial intermediation; limited liability; bailout policy;
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- D0 - Microeconomics - - General
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- Corbett, Jenny & Mitchell, Janet, 2000.
"Banking Crises and Bank Rescues: The Effect of Reputation,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 32(3), pages 474-512, August.
- Jenny Corbett & Janet Mitchell, 2000. "Banking crises and bank rescues: the effect of reputation," Proceedings, Federal Reserve Bank of Cleveland, pages 474-517.
- Jenny Corbett & Janet Mitchell, 2000. "Banking Crises and Bank Rescues: The Effect of Reputation," William Davidson Institute Working Papers Series 290, William Davidson Institute at the University of Michigan.
- Dmitri Vinogradov, 2003. "Macroeconomic evolution after a shock: the role for financial intermediation," Macroeconomics 0310007, EconWPA.
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