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
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Englisch
- Erschienen in
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Series: Working Paper ; No. 2014-01
- Klassifikation
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Wirtschaft
Financial Institutions and Services: Government Policy and Regulation
- Thema
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bank runs
bailouts
moral hazard
financial regulation
- Ereignis
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Geistige Schöpfung
- (wer)
-
Keister, Todd
- Ereignis
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Veröffentlichung
- (wer)
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Rutgers University, Department of Economics
- (wo)
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New Brunswick, NJ
- (wann)
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2014
- Handle
- Letzte Aktualisierung
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10.03.2025, 11:46 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Keister, Todd
- Rutgers University, Department of Economics
Entstanden
- 2014