Optimal Bailout of Systemic Banks

Charles Nolan, Plutarchos Sakellaris and John Tsoukalas
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Plutarchos Sakellaris: Athens University of Economics and Business

No 201607, Working Papers from Athens University Of Economics and Business, Department of Economics

Abstract: Following the recent global nancial crisis, there have been many significant changes to financial regulatory policies. These may have reduced the likelihood and future cost of the next crisis. However, they have not addressed the central dilemma in financial regulation which is that governments cannot commit not to bail out banks and other financial rms. We develop a simple model to reflect this dilemma, and argue that some form of penalty structure imposed on key decision makers post-bailout is necessary to address it.

Keywords: Financial Crisis; Bank bail-outs; Systemic risk; Macroprudential policy (search for similar items in EconPapers)
JEL-codes: E2 E3 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2016-07
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
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