IDEAS home Printed from
   My bibliography  Save this paper

Distortionary effects of anti-crisis measures and how to limit them, DNB Occasional Studies


  • W.A van den End
  • S.A.M. Verkaart
  • K.A. van Dijkhuizen


During the credit crisis, central banks and governments have taken extraordinary measures to preserve financial stability and prevent strong credit rationing of the private sector. Central banks cut official rates, provided liquidity support to the banking sector and supported specific financial markets with asset purchase programmes, whilst governments introduced measures such as guarantee schemes and made capital injections. These interventions prevented the financial system from collapsing and, in that sense, they have been effective. At the same time, the authorities have been aware that their measures may have distortionary effects on the markets. For instance, they may distort the level playing field between financial institutions that received support and those that did not, as is noticeable, for instance, from differences in funding costs. Furthermore, support aimed at specific market segments may lead to shifts in capital flows, and cross-border shifts may take place as a result of country-specific differences in support packages. Longer-term distortionary effects may follow, in particular, from excessive risk taking, e.g. by management, shareholders, bondholders and depositors of financial institutions. Such 'moral hazard' may also be created by extremely low policy rates and IMF measures. In designing their support measures, the authorities have sought to limit possible distortionary effects as much as possible. Thus, to the greatest possible extent, government support was granted on market-compatible and internationally harmonised conditions. Uncertainty among market participants may be mitigated by providing clarity on the details of the support policies, by creating an arm's length relationship between the government and the business management of the support-receiving institutions and by ensuring sustained responsibility on the part of private stakeholders. Of final importance is a smooth exit from support policies as soon as market recovery allows it.

Suggested Citation

  • W.A van den End & S.A.M. Verkaart & K.A. van Dijkhuizen, 2009. "Distortionary effects of anti-crisis measures and how to limit them, DNB Occasional Studies," DNB Occasional Studies 703, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbocs:703

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Bank for International Settlements, 2009. "An assessment of financial sector rescue programmes," BIS Papers, Bank for International Settlements, number 48, November.
    2. 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.
    3. Asli Demirgüç-Kunt & Enrica Detragiache, 2000. "Does Deposit Insurance Increase Banking System Stability?," IMF Working Papers 00/3, International Monetary Fund.
    4. Kashyap, Anil K. & Rajan, Raghuram G. & Stein, Jeremy C., 2008. "Rethinking capital regulation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 431-471.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. van Riet, Ad, 2010. "Euro area fiscal policies and the crisis," Occasional Paper Series 109, European Central Bank.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dnb:dnbocs:703. 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: (Rob Vet). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.