Optimal Design of Bank Bailouts: The Case of Transition Economies
The paper proposes a framework to analyze the effects of various bank bailout policies on bank managers' incentives first to lend prudently and second to disclose truthfully their non-performing loans. It is shown that tough bank closure rules have counterproductive effects on bank managers' incentives to invest and disclose prudently. Soft bailout policies create incentives to overstate loan losses to obtain larger recapitalizations. Such policies do not necessarily create moral hazard problems in lending. The paper characterizes the second-best recapitalization policy, which involves transfers conditional on the liquidation of non-performing loans. It is shown that the second-best recapitalization policy creates the same incentives for prudent lending as tough bank closure rules.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Volume (Year): 155 (1999)
Issue (Month): 1 (March)
|Contact details of provider:|| Web page: https://www.mohr.de/jite|
|Order Information:|| Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany|
When requesting a correction, please mention this item's handle: RePEc:mhr:jinste:urn:sici:0932-4569(199903)155:1_51:odobbt_2.0.tx_2-x. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Wolpert)
If references are entirely missing, you can add them using this form.