Bailouts and financial fragility

Arbeitspapier

Should policy makers be prevented from bailing out investors in the event of a crisis? I study this question in a model of financial intermediation with limited commitment. When a crisis occurs, the policy maker will respond by using public resources to augment the private consumption of those investors facing losses. The anticipation of such a "bailout" distorts ex ante incentives, leading intermediaries to choose arrangements with excessive illiquidity and thereby increasing financial fragility. Prohibiting bailouts is not necessarily desirable, however: while it induces intermediaries to become more liquid, it may nevertheless lower welfare and leave the economy more susceptible to a crisis. A policy of taxing short-term liabilities, in contrast, can both improve the allocation of resources and promote financial stability.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Paper ; No. 2014-01

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Financial Institutions and Services: Government Policy and Regulation
• Thema: bank runs ; bailouts ; moral hazard ; financial regulation

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Keister, Todd
• Ereignis: Veröffentlichung
• (wer): Rutgers University, Department of Economics
• (wo): New Brunswick, NJ
• (wann): 2014

Weitere Informationen

• Handle: http://hdl.handle.net/10419/123819
• Letzte Aktualisierung: 10.03.2025, 11:46 MEZ