Bank runs, political distortions and contagion

Victor Vaugirard ()
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Victor Vaugirard: TEAM-CNRS University of Paris at Sorbonne

Economics Bulletin, 2004, vol. 6, issue 18, 1-10

Abstract: This paper highlights the spread of banking panics across countries, as the public reassesses governments' propensity to bailouts. Policymakers decide whether to rescue a failing banking sector, by weighing the costs of a collapse against the costs associated with raising taxes to finance a bailout package. The former involve social costs for the society and personal costs for policymakers. In addition, they have an informational advantage over creditors regarding the costs of bank liquidation. A crisis in a country leads lenders to reexamine policymakers'' willingness to intervene in other countries, which eventually makes their banks more vulnerable to self-fulfilling depositors'' runs.

JEL-codes: F3 G2 (search for similar items in EconPapers)
Date: 2004-10-15
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