Bank Bailouts: Moral Hazard vs. Value Effect
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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.
Series:
Working Paper No. 1999/106
Subject:
Banking Deposit insurance Deposit rates Lender of last resort Moral hazard
English
Publication Date:
August 1, 1999
ISBN/ISSN:
9781451852875/1018-5941
Stock No:
WPIEA1061999
Pages:
30
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