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| Author: | Aghion, P. |
| Title: | Optimal design of bank bailouts: the case of transition economies |
| Journal: | Journal of Institutional and Theoretical Economics
1999 : MAR, VOL. 155:1, p. 51-70 |
| Index terms: | INSTITUTIONAL ECONOMICS THEORIES BANKING |
| Language: | eng |
| Abstract: | The paper proposes a framework to analyze the effects of various bank abilout policies on bank managers' incentives first to lend prudently and second to disclose truthfully their non-performing loans. It is shown that tough bank closure rules have counterproductive effects on bank managers' incentives to invest and disclose prudently. Soft bailout policies create incentives to overstate loan losses to obtain larger recapitalizations. |
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