Bailout Policy against Financial Intermediation Failures

Dmitri Vinogradov

Finance from EconWPA

Abstract: Asymmetry in views of depositors and bankers can generate failures of financial intermediation in linking creditors and borrowers, and/or result in excessively high interest rates. Instead of considering asymmetry in assessment of the banks' solvency, this paper focuses on asymmetry in views as to whether an insolvent bank will be liquidated or let to continue. Bailout policy has two effects in this respect: first, an insurance effect, which lowers market interest rates, and secondly, an announcement effect, which rules the asymmetry in beliefs out. The paper was presented at the 21st Symposium on Banking and Monetary Economics, Nice, 2004

Keywords: financial intermediation; limited liability; bailout policy (search for similar items in EconPapers)
JEL-codes: D0 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk
Date: 2005-06-07
Note: Type of Document - pdf; pages: 32
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0506003

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