Bailouts and Prudential Policies - A Delicate Interaction
Ernesto Pasten
Working Papers Central Bank of Chile from Central Bank of Chile
Abstract:
Could prudential policies backfire by making the lack of commitment problem of bailouts worse? This commitment problem refers to the excessive risk taken by banks and financial institutions in expectations of bailouts if crises occur, which in turn increase financial fragility and the severity of crises. Ex-ante policies, such as prudential policies, have a variety of effects on the various components of the ex-post incentives of an authority to implementing a bailout. Thus, the interaction between prudential policies and bailouts is delicate: In different conditions, a given prudential policy may backfire or increase its effectiveness by worsening or alleviating the lack of commitment problem of bailouts. Liquidity requirements and prudential taxes are examples of prudential policies that may backfire. Public debt is an example of an ex-ante policy usually with no prudential motivation that may play such a role.
Date: 2014-12
New Economics Papers: this item is included in nep-cba and nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
https://www.bcentral.cl/documents/33528/133326/DTBC_743.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:743
Access Statistics for this paper
More papers in Working Papers Central Bank of Chile from Central Bank of Chile Contact information at EDIRC.
Bibliographic data for series maintained by Alvaro Castillo ().