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Farhi, Emmanuel, and
Jean Tirole. 2012. "Collective Moral Hazard, Maturity Mismatch, and Systemic Bailouts."
,
102(1): 60-93.
Show Article Details
DOI: 10.1257/aer.102.1.60
Abstract:The article 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.
(JEL D82, E52, E58, G01, G21, G28)
Additional links:
Online Appendix
Authors:
Farhi, Emmanuel (Harvard U)
Tirole, Jean (Toulouse School of Economics)
JEL Classifications:
D82: Asymmetric and Private Information
E52: Monetary Policy
E58: Central Banks and Their Policies
G01: Financial Crises
G21: Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G28: Financial Institutions and Services: Government Policy and Regulation
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