Bank Bailouts: Moral Hazard vs. Value Effect
August 1, 1999
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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.
Subject: Banking, Deposit insurance, Deposit rates, Lender of last resort, Moral hazard
Keywords: central bank, WP
Pages:
30
Volume:
1999
DOI:
Issue:
106
Series:
Working Paper No. 1999/106
Stock No:
WPIEA1061999
ISBN:
9781451852875
ISSN:
1018-5941
