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Bank Bailouts: Moral Hazard vs. Value Effect

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  • Mr. Eduardo Levy Yeyati
  • Mr. Tito Cordella

Abstract

This paper shows that a central bank, by announcing and committing ex-ante to a bailout policy that is contingent on the realization of certain states of nature (for example on the occurrence of an adverse macroeconomic shock), creates a risk-reducing “value effect” that more than outweighs the moral hazard component of such a policy.

Suggested Citation

  • Mr. Eduardo Levy Yeyati & Mr. Tito Cordella, 1999. "Bank Bailouts: Moral Hazard vs. Value Effect," IMF Working Papers 1999/106, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1999/106
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    References listed on IDEAS

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