Liquidity, moral hazard and bank crises

Shurojit Chatterji and Sayantan Ghosal
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Shurojit Chatterji: Singapore Management University

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: Bank crises, by interrupting liquidity provision, have been viewed as resulting in welfare losses. In a model of banking with moral hazard, we show that second best bank contracts that improve on autarky ex-ante require costly crises to occur with positive probability at the interim stage. When bank payo¤s are partially appropriable, either directly via imposition of …nes or indirectly by the use of bank equity as a collateral, we argue that an appropriately designed ex-ante regime of policy intervention involving conditional monitoring can prevent bank crises.

Keywords: bank runs; contagion; moral hazard; liquidity; random; contracts; monitoring. (search for similar items in EconPapers)
Date: 2010
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https://warwick.ac.uk/fac/soc/economics/research/c ... _ghosal_bankruns.pdf

Related works:
Working Paper: Liquidity, moral hazard and bank crises (2013)
Working Paper: Liquidity, moral hazard and bank crises (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:27

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