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    Crony Capitalism and Financial System Stability

    Pecchenino, Rowena
    Haslag, Joseph H.
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    [PDF] CronyCapitalismFinancialSystemStability.pdf (163.2Kb)
    Date
    2001
    Format
    Working Paper
    Metadata
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    Abstract
    With the Asian financial crises, people identified crony relationships as the ultimate cause of bank instability. We examine the issue of crony capitalism in the context of model economy in which cronies are a class of project owners that have access to a government loan guarantee. While such a loan guarantee may induce more risk taking on the part of the crony--moral hazard--bank instability does not necessarily follow from the moral hazard problem. Rather, it is collapse of the government loan guarantee program that plays an important role in destablizing banks. Banks have insufficient equity stockpiled against the unexpected abandonment of the government loan guarantee.
    URI
    http://hdl.handle.net/10355/2740
    Part of
    Working papers (Department of Economics);WP 01-10
    Part of
    Economics publications
    Citation
    Department of Economics, 2001
    Rights
    OpenAccess.
    This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 License.
    Collections
    • Economics publications (MU)

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