IMF Working Papers

Bank Bailouts: Moral Hazard vs. Value Effect

By Eduardo Levy Yeyati, Tito Cordella

August 1, 1999

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Eduardo Levy Yeyati, and Tito Cordella. Bank Bailouts: Moral Hazard vs. Value Effect, (USA: International Monetary Fund, 1999) accessed December 6, 2024
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.

Subject: Banking, Deposit insurance, Deposit rates, Lender of last resort, Moral hazard

Keywords: Central bank, WP

Publication Details

  • Pages:

    30

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1999/106

  • Stock No:

    WPIEA1061999

  • ISBN:

    9781451852875

  • ISSN:

    1018-5941