Ngân hàng 2 có thể securitize vào ngày 1 vay của ngân hàng 1 và có được V21 (ρ1) nếu nó cần phải đáp ứng sốc thanh khoản riêng của mình. Vì vậy, tổng dự trữ của ngân hàng 2 bằng L2 + V21 (ρ1), và đang nonincreasing trong ρ1. | INTERBANK LENDING AND SYSTEMIC RISK 149 Bank 2 can securitize at date 1 its loan to bank 1 and obtain V21 p1 if it needs to meet its own liquidity shock. So bank 2 s total reserves are equal to L2 V21 p1 and are nonincreasing in p1. The interbank loan just defined implements the optimum defined in proposition if and only if L2 V21 P1 P2 P1 - Po I2- Thus it implements the optimum if and only if the likelihood ratio which recall defines P2 satisfies this equality. Conversely starting from a given likelihood ratio one can build interbank claims that yield the optimum. Although the resulting interbank claim need not be a simple senior unsecured debt claim as in this example its qualitative features are similar to those of the example. Soft Budget Constraints Do Not Imply Too Big to Fail Conventional wisdom dictates that banks with large amounts of uninsured deposits cannot be allowed to fail when their failure would trigger a chain of bankruptcies for example sixty-six banks had uninsured deposits at Continental Illinois in excess of their capital when the latter was in distress in 1984 . It is widely accepted that interbank lending puts the central bank in an awkward position of having to step in when a bank with large amounts of uninsured deposits is about to fail. Our analysis of the SBC shows that it arises exactly in the circumstances that are perceived to create the TBTF conundrum namely when the borrowing bank is in trouble P1 high and the lending bank s are themselves fragile p2 P0 but high . One can also note that TBTF is itself an expression of an SBC that is of a policy that the central bank would like but is unable to commit to in order to create proper incentives. Indeed TBTF depicts the case in which the undesirable rescue takes the specific form of bailing out the borrowing bank in order to save the lending banks as opposed to letting the borrowing bank fail and rescuing the lending banks in other ways. The analysis of date-0 monitoring does .
