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Prudential Policies and Bailouts - A Delicate Interaction

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  • Ernesto Pasten

Abstract

This paper calls attention to the non-trivial (and sometimes pervasive) effects of ex- ante policies, such as prudential policies, on banks’ risk taking through their effects on the ex-post incentives to bailouts when the authority lacks commitment. In particular, liquidity requirements, a crisis resolution fund and prudential taxes are examples of policies that may backfire. Conversely, public debt is an example of an ex-ante policy usually with no prudential motivation that may play such a role.

Suggested Citation

  • Ernesto Pasten, 2019. "Prudential Policies and Bailouts - A Delicate Interaction," Working Papers Central Bank of Chile 853, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:853
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_853.pdf
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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