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Optimal Interventions in Markets with Adverse Selection
Philippon, Thomas; Skreta, Vasiliki - C.E.P.R. Discussion Papers - 2010
We study interventions to restore efficient lending and investment when financial markets fail because of adverse selection. We solve a design problem where the decision to participate in a program offered by the government can be a signal for private information. We charac terize optimal...
Persistent link: https://www.econbiz.de/10008468692
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Measuring Systemic Risk
Acharya, Viral V; Pedersen, Lasse H; Philippon, Thomas; … - C.E.P.R. Discussion Papers - 2012
We present a simple model of systemic risk and we show that each financial institution's contribution to systemic risk can be measured as its systemic expected shortfall (SES), i.e., its propensity to be undercapitalized when the system as a whole is undercapitalized. SES increases with the...
Persistent link: https://www.econbiz.de/10011084350
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Complementing Bagehot: Illiquidity and insolvency resolution
Eijffinger, Sylvester C W; Nijskens, Rob - C.E.P.R. Discussion Papers - 2011
During the recent financial crisis, central banks have provided liquidity and governments have set up rescue programmes to restore confidence and stability, often against the LLR principle advocated by Bagehot. Using a model of a systemic bank suffering from liquidity shocks, we find that the...
Persistent link: https://www.econbiz.de/10009320403
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Does the European Financial Stability Facility bail out sovereigns or banks? An event study
Horvath, Balint; Huizinga, Harry - C.E.P.R. Discussion Papers - 2011
On May 9, 2010 euro zone countries announced the creation of the European Financial Stability Facility as a response to the sovereign debt crisis. This paper investigates the impact of this announcement on bank share prices, bank CDS spreads and sovereign CDS spreads. The main private...
Persistent link: https://www.econbiz.de/10009365641
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The lender of last resort: liquidity provision versus the possibility of bail-out
Eijffinger, Sylvester C W; Nijskens, Rob - C.E.P.R. Discussion Papers - 2010
authority faces a trade-off: when it imposes strict bailout conditions, investment increases but moral hazard ensues. Milder … bailout conditions reduce excessive risk taking at the expense of investment. This resembles the current situation on …
Persistent link: https://www.econbiz.de/10008468710
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Too Many to Fail - An Analysis of Time Inconsistency in Bank Closure Policies
Acharya, Viral V; Yorulmazer, Tanju - C.E.P.R. Discussion Papers - 2004
This Paper shows that bank closure policies suffer from a ‘too-many-to-fail’ problem: when the number of bank failures is large, the regulator finds it ex-post optimal to bail out some or all failed banks, whereas when the number of bank failures is small, failed banks can be acquired by the...
Persistent link: https://www.econbiz.de/10005136753
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Bailouts And Moral Hazard: How Implicit Government Guarantees Affect Financial Stability
Mariathasan, Mike; Merrouche, Ouarda; Werger, Charlotte - C.E.P.R. Discussion Papers - 2014
The recent crisis has shown that banks in distress can often expect to benefit from (implicit) government guarantees. This paper analyzes a panel of 781 banks from 90 countries to test whether the expectation of individual and systemic government support induces moral hazard. It shows that banks...
Persistent link: https://www.econbiz.de/10011145454
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Caught between Scylla and Charybdis? Regulating bank leverage when there is rent-seeking and risk-shifting
Acharya, Viral V; Mehran, Hamid; Thakor, Anjan - C.E.P.R. Discussion Papers - 2012
We consider a model in which banks face two moral hazard problems: 1) asset substitution by shareholders, which can occur when banks make socially-inefficient, risky loans; and 2) managerial under-provision of effort in loan monitoring. The privately-optimal level of bank leverage is neither too...
Persistent link: https://www.econbiz.de/10011084299
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Bailout Uncertainty in a Microfounded General Equilibrium Model of the Financial System
Cukierman, Alex; Izhakian, Yehuda - C.E.P.R. Discussion Papers - 2011
' beliefs about the probability of bailout. Events like Lehman's collapse are conceived of as 'black swan' events that led … lenders to put a positive mass on bailout probabilities that were previously assigned zero mass. Results of the analysis … include: (i) An unanticipated increase in bailout uncertainty raises interest rates, the volume of defaults in both the real …
Persistent link: https://www.econbiz.de/10009144737
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Household Leverage and the Recession
Midrigan, Virgiliu; Philippon, Thomas - C.E.P.R. Discussion Papers - 2011
A salient feature of the recent U.S. recession is that output and employment have declined more in regions (states, counties) where household leverage had increased more during the credit boom. This pattern is difficult to explain with standard models of financing frictions. We propose a theory...
Persistent link: https://www.econbiz.de/10009024926