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So Far, So Good: Government Insurance of Financial Sector Tail Risk

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  • Larry D. Wall

Abstract

The US government has intervened to provide extraordinary support 16 times from 1970 to 2020 with the goal of preventing or mitigating (or both) the cost of financial instability to the financial sector and the real economy. This article discusses the motivation for such support, reviewing the instances where support was provided, along with one case where it was expected but not provided. The article then discusses the moral hazard and fiscal risks posed by the government's insurance of the tail risk along with ways to reduce the government's risk exposure.

Suggested Citation

  • Larry D. Wall, 2021. "So Far, So Good: Government Insurance of Financial Sector Tail Risk," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2021(13), November.
    • Handle: RePEc:fip:a00068:96624
    DOI: 10.29338/ph2021-13
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    More about this item

    Keywords

    financial stability; FDIC; Federal Reserve; Treasury; bailout; financial history;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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