Smooth versus Harsh Regulatory Interventions and Policy Equivalence

Linda Schilling

MPRA Paper from University Library of Munich, Germany

Abstract: Policy makers have developed different forms of policy intervention for stopping, or preventing runs on financial firms. This paper provides a general framework to characterize the types of policy intervention that indeed lower the run-propensity of investors versus those that cause adverse investor behavior, which increases the run-propensity. I employ a general global game to analyze and compare a large set of regulatory policies. I show that common policies such as bailouts, Emergency Liquidity Assistance, and withdrawal fees either exhibit features that lower firm stability ex ante, or have offsetting features rendering the policy ineffective.

Keywords: financial regulation; bank runs; global games; policy effectiveness; bank resolution; withdrawal fees; emergency liquidity assistance; lender of last resort policies; money market mutual fund gates; suspension of convertibility (search for similar items in EconPapers)
JEL-codes: D81 D82 E61 G21 G28 G33 G38 (search for similar items in EconPapers)
Date: 2023-03-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon and nep-reg
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https://mpra.ub.uni-muenchen.de/116612/1/MPRA_paper_116612.pdf original version (application/pdf)

Related works:
Working Paper: Smooth versus Harsh Regulatory Interventions and Policy Equivalence (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:116612

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