Bank Bailouts: Moral Hazard vs. Value Effect

Author: Mr. Eduardo Levy Yeyati and Mr. Tito Cordella

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.

Volume/Issue: Volume 1999 Issue 106

Publication date: August 1999

ISBN: 9781451852875

$20.00

Add to Cart by clicking price of the language and format you'd like to purchase

Available Languages and Formats

	Paperback	PDF	ePub	Mobi
English

Prices in red indicate formats that are not yet available but are forthcoming.

Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Business and Economics , Banks and Banking , Finance , WP , central bank

Also of interest

WORKING PAPERS PUBLISHED IN FEBRUARY 2003

WORKING PAPERS PUBLISHED IN MAY 2003

WORKING PAPERS PUBLISHED IN JULY 2006

WORKING PAPERS PUBLISHED IN JULY 2005

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.