Table of Contents

Financial Crisis Containment and Government Guarantees

Financial Crisis Containment and Government Guarantees

Edited by John Raymond LaBrosse, Rodrigo Olivares-Caminal and Dalvinder Singh

Financial Crisis Containment and Government Guarantees analyses the international community’s commitment to forging enhanced, well thought-out, mechanisms for containing systemic risks in the context of a highly interconnected global financial framework which incorporates ongoing financial innovation.

Chapter 13: An insurance approach for preventing financial crises

Michael Faure and Klaus Heine

Subjects: economics and finance, financial economics and regulation, money and banking, law - academic, finance and banking law

Extract

With the financial crisis, the amount of subsidies provided by government has increased considerably. Governments also provide compensation in other types of crises, for example after a natural catastrophe. We argue in this chapter that the economic approach towards compensation of victims in case of natural catastrophes can also provide an important contribution to the interventions of a government during the financial crisis. That is, also for risks emerging from the financial crisis, insurance may provide an attractive solution. In a recent paper Michel-Kerjan has programmatically pointed to this idea: [T]he matter of financing large-scale disasters has relevance for many other catastrophes: hurricanes, earthquakes, pandemics, terrorist attacks, technological accidents, and even financial crises [emphasis added]. In all of these settings, one fundamental question arises: Who will pay for the economic consequences of future catastrophes and how best to organize this payment? . . . Catastrophe economics, which seeks to shed light on these issues, is likely to become a more significant field of research in the coming years.

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