Rescue Strategy Without Moral Hazard – An Attempt to Provide a Master Plan for Avoiding Banking Crises

Publication: White Paper No. 3, 2010
Topic Area: Financial Institutions
Authors: Jan Pieter Krahnen,
Helmut Siekmann
Date: Feb 2010
Keywords: systemic risk, banking hospital
Abstract:

Against the background of the last two and a half years, the following analysis will develop a concept for crisis prevention and intervention, outlining a reaction strategy for dealing with crises at both the micro and macro level that is consistent, effective and embedded in an institutional/constitutional framing (“Ordnungspolitik”). In this context, the term “consistent” is intended to imply that measures adopted in the short term (crisis intervention policies) and those implemented on a long-term basis (crisis prevention policies) will complement rather than contradict one another. The institutional framing is to make sure that the policy neither generates the wrong incentives nor distorts competition to any large degree.

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