Description

This paper calls attention to the non-trivial (and sometimes pervasive) effects of ex- ante policies, such as prudential policies, on banks’ risk taking through their effects on the ex-post incentives to bailouts when the authority lacks commitment. In particular, liquidity requirements, a crisis resolution fund and prudential taxes are examples of policies that may backfire. Conversely, public debt is an example of an ex-ante policy usually with no prudential motivation that may play such a role.