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Market financing of bail-out targets

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  • Pérez Montes, Carlos

Abstract

A bank that needs a public bail-out to avoid liquidation can use financial contracts to provide contingent liquidation rights to investors and force the government to increase public support. Limiting the size of the bail-out before knowing the bank’s financial condition decreases welfare if the government is strongly pro-continuation.

Suggested Citation

  • Pérez Montes, Carlos, 2013. "Market financing of bail-out targets," Economics Letters, Elsevier, vol. 118(2), pages 385-388.
    • Handle: RePEc:eee:ecolet:v:118:y:2013:i:2:p:385-388
    DOI: 10.1016/j.econlet.2012.12.003
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    References listed on IDEAS

    as
    1. Philippe Aghion & Patrick Bolton, 1992. "An Incomplete Contracts Approach to Financial Contracting," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(3), pages 473-494.
    2. Mathias Dewatripont & Jean Tirole, 1994. "A Theory of Debt and Equity: Diversity of Securities and Manager-Shareholder Congruence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1027-1054.
    3. Mr. Burkhard Drees & Ceyla Pazarbasioglu, 1995. "The Nordic Banking Crises: Pitfalls in Financial Liberalization?," IMF Working Papers 1995/061, International Monetary Fund.
    4. Erik Berglöf & Ernst-Ludwig von Thadden, 1994. "Short-Term versus Long-Term Interests: Capital Structure with Multiple Investors," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1055-1084.
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    More about this item

    Keywords

    Bank bail-out; Capital structure; Control rights;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • D60 - Microeconomics - - Welfare Economics - - - General

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