An Economic Analysis of Financial Structure
An Economic Analysis of Financial Structure
An Economic Analysis of Financial Structure
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Moral Hazard: 1. After transaction occurs 2. Hazard that borrower has incentives to engage in undesirable (immoral) activities making it more likely that wont pay loan back
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Financial Crises
Factors Causing Financial Crises 1. Increase in interest rates 2. Increases in uncertainty 3. Asset market effects on balance sheets Stock market effects on net worth Unanticipated deflation Cash flow effects 4. Bank panics 5. Government fiscal imbalances
2006 Pearson Addison-Wesley. All rights reserved 8-13
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