Bank Bailouts : Moral Hazard vs. Value Effect

Author/Editor:

Eduardo Levy Yeyati ; Tito Cordella

Publication Date:

August 1, 1999

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper shows that a central bank, by announcing and committing ex-ante to a bailout policy that is contingent on the realization of certain states of nature (for example on the occurrence of an adverse macroeconomic shock), creates a risk-reducing “value effect” that more than outweighs the moral hazard component of such a policy.

Series:

Working Paper No. 99/106

English

Publication Date:

August 1, 1999

ISBN/ISSN:

9781451852875/1018-5941

Stock No:

WPIEA1061999

Format:

Paper

Pages:

30

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