Dell'Ariccia, Giovanni; Ratnovski, Lev - International Monetary Fund (IMF) - 2013
We revisit the link between bailouts and bank risk taking. The expectation of government support to failing banks … creates moral hazard—increases bank risk taking. However, when a bank’s success depends on both its effort and the overall … invest prudently and so reduce bank risk taking. This systemic insurance effect will be relatively more important when …