Bailouts and Financial Fragility
In: The Review of Economic Studies, Volume 83, Issue 2, April 2016, Pages 704–736.
22 Ergebnisse
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In: The Review of Economic Studies, Volume 83, Issue 2, April 2016, Pages 704–736.
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In: Journal of Monetary Economics, Band 57, Heft 1, S. 97-100
In: Macroeconomic Dynamics, Band 5, Heft 3
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In: Journal of economic dynamics & control, Band 142, S. 104496
ISSN: 0165-1889
In: Journal of economic dynamics & control, Band 142, S. 104501
ISSN: 0165-1889
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We study the interaction between a government's bailout policy and banks' willingness to impose losses on (or \bail in") their investors. The government has limited commitment and may choose to bail out banks facing large losses. The anticipation of this bailout undermines a bank's private incentive to impose a bail-in. In the resulting equilibrium, bail-ins are too small and bailouts are too large. Some banks may also face a run by informed investors, creating further distortions and leading to larger bailouts. We show how a regulator with limited information can raise welfare and improve financial stability by imposing a system-wide, mandatory bail-in at the onset of a crisis. In some situations, allowing banks to choose between meeting a minimum bail-in and opting out can raise welfare further.
BASE
In: Journal of Monetary Economics, Band 92, S. 64-77
In: Macroeconomic Dynamics, Band 10, Heft 1
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In: FRB of Philadelphia Working Paper No. 21-37
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In: FRB of Philadelphia Working Paper No. 19-26
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Working paper
In: BIS Working Paper No. 432
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In: Journal of Monetary Economics, Band 57, Heft 4, S. 404-419
In: American economic review, Band 99, Heft 4, S. 1588-1607
ISSN: 1944-7981
We study ex post efficient policy responses to a run on the banking system and the ex ante incentives these responses create. We show that the efficient response to a run is typically not to freeze all remaining deposits, since doing so imposes heavy costs on some individuals. Instead, once a run is underway, (benevolent) government institutions would allow additional deposit withdrawals, placing further strain on the banking system. When depositors anticipate these extra withdrawals, their incentive to participate in the run increases. In fact, ex post efficient interventions can generate the conditions necessary for a self-fulfilling run to occur. (JEL G21, G8)
In: Journal of Monetary Economics, Band 53, Heft 2, S. 217-232