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Using disaster planning to optimize expenditures on financial safety nets

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  • Edward Kane

Abstract

Using a multiperiod model, this paper offers a benchmark standard for efficient safety net management. This standard embodies a market-mimicking strategy for identifying, preventing, and resolving bank insolvencies. Around the world, governmental reluctance to acknowledge weaknesses in their crisis prevention efforts supports an underinvestment in contingent plans for handling financial disaster. The model features the hypothesis that this underinvestment misserves taxpayers by increasing the ability of stakeholders in insolvent banks to extract implicit and explicit subsidies when and as the threat of an actual crisis intensifies. Copyright International Atlantic Economic Society 2001

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  • Edward Kane, 2001. "Using disaster planning to optimize expenditures on financial safety nets," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 29(3), pages 243-253, September.
    • Handle: RePEc:kap:atlecj:v:29:y:2001:i:3:p:243-253
    DOI: 10.1007/BF02300546
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    References listed on IDEAS

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    1. Asli Demirgüç-Kunt & Ms. Enrica Detragiache, 2000. "Does Deposit Insurance Increase Banking System Stability?," IMF Working Papers 2000/003, International Monetary Fund.
    2. Laeven, Luc, 2000. "Banking risks around the world - the implicit safety net subsidy approach," Policy Research Working Paper Series 2473, The World Bank.
    3. Walker F. Todd, 1994. "Lessons from the collapse of three state-chartered private deposit insurance funds," Economic Commentary, Federal Reserve Bank of Cleveland, issue May.
    4. Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October.
    5. George G. Kaufman & Steven A. Seelig, 2000. "Post-resolution treatment of depositors at failed banks: implications for the severity of banking crises, systemic risk, and too-big-to-fail," Working Paper Series WP-00-16, Federal Reserve Bank of Chicago.
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    Cited by:

    1. Goodhart, Charles A.E. & Huang, Haizhou, 2005. "The lender of last resort," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1059-1082, May.
    2. Kane, Edward J., 2002. "Resolving systemic financial crises efficiently," Pacific-Basin Finance Journal, Elsevier, vol. 10(3), pages 217-226, June.
    3. Kane, Edward J. & Klingebiel, Daniela, 2004. "Alternatives to blanket guarantees for containing a systemic crisis," Journal of Financial Stability, Elsevier, vol. 1(1), pages 31-63, September.
    4. Wall, Larry D. & Eisenbeis, Robert A. & Frame, W. Scott, 2005. "Resolving large financial intermediaries: Banks versus housing enterprises," Journal of Financial Stability, Elsevier, vol. 1(3), pages 386-425, April.
    5. Soliwoda, Michał, 2016. "The Concept Of “Safety Net” And Its Application In American And Canadian Agriculture," Journal of Agribusiness and Rural Development, University of Life Sciences, Poznan, Poland, vol. 40(2).

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