Bailouts, moral hazard and banks׳ home bias for Sovereign debt
| Autor: | Ariel Zetlin-Jones, Gaetano Gaballo |
|---|---|
| Rok vydání: | 2016 |
| Předmět: |
Economics and Econometrics
Ex-ante Moral hazard media_common.quotation_subject 05 social sciences Financial intermediary Context (language use) Monetary economics Macroprudential regulation Sovereignty Debt 0502 economics and business Economics Dynamic inconsistency 050207 economics Finance 050205 econometrics media_common |
| Zdroj: | Journal of Monetary Economics. 81:70-85 |
| ISSN: | 0304-3932 |
| DOI: | 10.1016/j.jmoneco.2016.04.002 |
| Popis: | We show that an increase in banks׳ holdings of domestic Sovereign debt decreases the ability of domestic Sovereigns to successfully enact bailouts. When Sovereigns finance bailouts with newly issued debt and the price of Sovereign debt is sensitive to unanticipated debt issues, then bailouts dilute the value of banks׳ Sovereign debt holdings rendering bailouts less effective. We explore this feedback mechanism in a model of financial intermediation in which banks are subject to managerial moral hazard and ex ante optimality requires lenders to commit to ex post inefficient bank liquidations. A benevolent Sovereign may desire to enact bailouts to prevent such liquidations thereby neutralizing lenders׳ commitment. In this context, home bias for Sovereign debt may arise as a mechanism to deter bailouts and restore lenders׳ commitment. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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