American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Collective Moral Hazard, Maturity Mismatch, and Systemic Bailouts
American Economic Review
vol. 102,
no. 1, February 2012
(pp. 60–93)
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)Citation
Farhi, Emmanuel, and Jean Tirole. 2012. "Collective Moral Hazard, Maturity Mismatch, and Systemic Bailouts." American Economic Review, 102 (1): 60–93. DOI: 10.1257/aer.102.1.60Additional Materials
JEL Classification
- 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