Prudential Policies and Bailouts - A Delicate Interaction

Ernesto Pasten

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: This paper calls attention to the non-trivial (and sometimes pervasive) effects of ex- ante policies, such as prudential policies, on banks’ risk taking through their effects on the ex-post incentives to bailouts when the authority lacks commitment. In particular, liquidity requirements, a crisis resolution fund and prudential taxes are examples of policies that may backfire. Conversely, public debt is an example of an ex-ante policy usually with no prudential motivation that may play such a role.

Date: 2019-10
New Economics Papers: this item is included in nep-cba
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https://www.bcentral.cl/documents/33528/133326/DTBC_853.pdf (application/pdf)

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Journal Article: Prudential Policies and Bailouts: A Delicate Interaction (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:853

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