Citation

Discussion Paper Details

Please find the details for DP4727 in an easy to copy and paste format below:

Full Details

Title: Policies for Banking Crises: A Theoretical Framework

Author(s): Rafael Repullo

Publication Date: November 2004

Keyword(s): bank runs, bank supervision, banking crises, deposit insurance, forbearance, lender of last resort and risk-shifting incentives

Programme Area(s): Financial Economics

Abstract: This Paper analyses the effects on ex ante risk-shifting incentives and ex post fiscal costs of three policies that are frequently used in dealing with banking crises, namely, forbearance from prudential regulations, extension of blanket deposit guarantees, and provision of unrestricted liquidity support. In the context of a simple model of information-based bank runs, where banks are funded with both insured and uninsured deposits, the paper shows that the expectation of implementation of any of these policies leads to a reduction in the interest rate of uninsured deposits and in the bank?s incentives to take risk, but increases the expected fiscal costs of the crises.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4727

Bibliographic Reference

Repullo, R. 2004. 'Policies for Banking Crises: A Theoretical Framework'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4727