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Market financing of bail-out targets

Carlos Pérez Montes

Economics Letters, 2013, vol. 118, issue 2, 385-388

Abstract: A bank that needs a public bail-out to avoid liquidation can use financial contracts to provide contingent liquidation rights to investors and force the government to increase public support. Limiting the size of the bail-out before knowing the bank’s financial condition decreases welfare if the government is strongly pro-continuation.

Keywords: Bank bail-out; Capital structure; Control rights (search for similar items in EconPapers)
JEL-codes: G21 G32 G33 D60 (search for similar items in EconPapers)
Date: 2013
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Handle: RePEc:eee:ecolet:v:118:y:2013:i:2:p:385-388