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Pastimes : Ask Mohan about the Market

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To: Rational who wrote (8340)11/17/1997 10:47:00 PM
From: Sam Citron  Read Replies (1) of 18056
 
Sankar,

Thanks for your observations. You assume that BOJ will have to bail out failing banks. Why? Is there a legal committment to do so under a government grarantee? Is it necessary or desireable? Tradition?
Is this a "too big to fail" situation? What about the moral hazards of such a rescue package? Wont it send exactly the wrong message and give people the incentive to place deposits in risky banks because they may offer a bit higher interest rate?

SC
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