Chatterji, S.; Ghosal, S. - Department of Economics, Adam Smith Business School - 2013
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 payoffs are partially appropriable, either directly via …