Bank Bailouts: Moral Hazard vs. Value Effect

Eduardo Levy Yeyati and Tito Cordella

No 1999/106, IMF Working Papers from International Monetary Fund

Abstract: This paper shows that a central bank, by announcing and committing ex-ante to a bailout policy that is contingent on the realization of certain states of nature (for example on the occurrence of an adverse macroeconomic shock), creates a risk-reducing “value effect” that more than outweighs the moral hazard component of such a policy.

Keywords: WP; central bank (search for similar items in EconPapers)
Pages: 30
Date: 1999-08-01
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Journal Article: Bank bailouts: moral hazard vs. value effect (2003)
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