Probabilistic causality and decisions on bailouts of financial institutions

Fernando Moreira
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Fernando Moreira: Senior Lecturer in Banking and Risk Management, University of Edinburgh Business School

Journal of Risk Management in Financial Institutions, 2017, vol. 10, issue 2, 201-212

Abstract: This paper uses probabilistic causality measures to support decisions about bailouts of financial institutions in non-crisis periods. The model suggested is simple and can easily be applied by practitioners. The approach is tested with daily market-based data of six large UK financial institutions. Contrary to what many experts claim, this study shows evidence that rescuing financial institutions is not always needed in order to prevent systemic crises.

Keywords: bailouts; systemic risk; systemically important institutions; probabilistic causality (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:aza:rmfi00:y:2017:v:10:i:2:p:201-212

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