Collective moral hazard, maturity mismatch, and systemic bailouts

Emmanuel Farhi*, Jean Tirole

*Corresponding author for this work

    Research output: Contribution to journalReview articlepeer-review

    311 Scopus citations

    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.

    Original languageEnglish (US)
    Pages (from-to)60-93
    Number of pages34
    JournalAmerican Economic Review
    Volume102
    Issue number1
    DOIs
    StatePublished - Feb 2012

    ASJC Scopus subject areas

    • Economics and Econometrics

    Fingerprint

    Dive into the research topics of 'Collective moral hazard, maturity mismatch, and systemic bailouts'. Together they form a unique fingerprint.

    Cite this