01748cas a2200253 a 4500 AALejournalIMF013985 230101c9999 xx r poo 0 0eng d 5.00 USD 9781475514742 1018-5941 BD-DhAAL BD-DhAAL Dell'Ariccia, Giovanni. Bailouts and Systemic Insurance / Giovanni Dell'Ariccia, Lev Ratnovski. Washington, D.C. : International Monetary Fund, 2013. 1 online resource (28 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We revisit the link between bailouts and bank risk taking. The expectation of government support to failing banks creates moral hazard-increases bank risk taking. However, when a bank's success depends on both its effort and the overall stability of the banking system, a government's commitment to shield banks from contagion may increase their incentives to invest prudently and so reduce bank risk taking. This systemic insurance effect will be relatively more important when bailout rents are low and the risk of contagion (upon a bank failure) is high. The optimal policy may then be not to try to avoid bailouts, but to make them 'effective': associated with lower rents. Mode of access: Internet Ratnovski, Lev. IMF Working Papers; Working Paper ; No. 2013/233 Full text available on IMF http://elibrary.imf.org/view/journals/001/2013/233/001.2013.issue-233-en.xml IMF e-Library