Arbeitspapier

Bailouts and financial fragility

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.

Sprache
Englisch

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

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

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

Handle
Letzte Aktualisierung
10.03.2025, 11:46 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Keister, Todd
  • Rutgers University, Department of Economics

Entstanden

  • 2014

Ähnliche Objekte (12)