Bailouts and financial fragility

Arbeitspapier

How does the belief that policymakers will bail out investors in the event of a crisis affect the allocation of resources and the stability of the financial system? I study this question in a model of financial intermediation with limited commitment. When a crisis occurs, the efficient policy response is to use 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: it induces intermediaries to become too liquid from a social point of view and may, in addition, leave the economy more susceptible to a crisis. A policy of taxing short-term liabilities, in contrast, can correct the incentive problem while improving financial stability.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Staff Report ; No. 473

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Policy Objectives; Policy Designs and Consistency; Policy Coordination ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation
• Thema: Bank runs ; financial regulation

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Keister, Todd
• Ereignis: Veröffentlichung
• (wer): Federal Reserve Bank of New York
• (wo): New York, NY
• (wann): 2010

Weitere Informationen

• Handle: http://hdl.handle.net/10419/60925
• Letzte Aktualisierung: 20.09.2024, 08:21 MESZ