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Bailout Policy against Financial Intermediation Failures

Author

Listed:
  • 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

Suggested Citation

  • Dmitri Vinogradov, 2005. "Bailout Policy against Financial Intermediation Failures," Finance 0506003, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpfi:0506003
    Note: Type of Document - pdf; pages: 32
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0506/0506003.pdf
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    References listed on IDEAS

    as
    1. Jenny Corbett & Janet Mitchell, 2000. "Banking crises and bank rescues: the effect of reputation," Proceedings, Federal Reserve Bank of Cleveland, pages 474-517.
    2. Dmitri Vinogradov, 2003. "Macroeconomic evolution after a shock: the role for financial intermediation," Macroeconomics 0310007, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    financial intermediation; limited liability; bailout policy;

    JEL classification:

    • D0 - Microeconomics - - General

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