Collective Moral Hazard, Maturity Mismatch and Systemic Bailouts

Farhi, Emmanuel and Tirole, Jean (2012) Collective Moral Hazard, Maturity Mismatch and Systemic Bailouts. American Economic Review (AER), 102. pp. 60-93.

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Official URL: http://tse-fr.eu/pub/23882

Abstract

The paper shows that time-consistent, imperfectly targeted support to distressed institutions makes private leverage choices strategic complements. When everyone engages in maturity mismatch, authorities have little choice but intervening, creating both current and deferred (sowing the seeds of the next crisis) social costs. In turn, it is profitable to adopt a risky balance sheet. These insights have important consequences, from banks choosing to correlate their risk exposures to the need for macro-prudential supervision.
Keywords: monetary policy, funding liquidity risk, strategic complementarities, macro-prudential supervision

Item Type: Article
Language: English
Date: February 2012
Refereed: Yes
Uncontrolled Keywords: monetary policy, funding liquidity risk, strategic complementarities, macro-prudential supervision
JEL codes: E44 - Financial Markets and the Macroeconomy
E52 - Monetary Policy (Targets, Instruments, and Effects)
G28 - Government Policy and Regulation
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:17
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:23882
URI: http://publications.ut-capitole.fr/id/eprint/15102

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