Mundaca, Gabriela (2008): Monitoring, Liquidity and Financial Crises.
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This paper analyzes central bank policies on the monitoring of banks in distress in which liquidity provisions are conditional on performance when a bad shock occurs. A sequential game model is used to analyze two policies: the first one in which the central bank acts with discretion and the second in which the optimal monitoring policy rule is made public. The results show that banks exert less effort and take higher risks with a discretionary monitoring policy. With public information about monitoring rules, there is more central bank monitoring and less need to provide emergency funding. Public information about monitoring resolves the multiple equilibria that arise with discretion in fact, a unique equilibrium emerges in which the probability of a banking crisis is reduced.
|Item Type:||MPRA Paper|
|Original Title:||Monitoring, Liquidity and Financial Crises|
|Keywords:||monitoring liquidity provision financial crises conditionality|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation
G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
|Depositing User:||Gabriela Mundaca|
|Date Deposited:||06. Feb 2010 17:47|
|Last Modified:||13. Feb 2013 08:17|
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