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De Facto Bank Bailouts
Published online by Cambridge University Press: 04 March 2022
Abstract
The U.S. government uses its voting power to direct IMF loans to countries where U.S. banks are exposed to sovereign default (a de facto bailout). This effect is stronger in years when the costs of direct bailouts are higher and is also found among major European IMF members. We find that de facto bailouts reduce government incentives to default and that U.S. Congressional voting on IMF funding is consistent with a private interest view of government. Overall, we identify an alternative mechanism through which governments can backstop the losses of large multinational banks.
- Type
- Research Article
- Information
- Journal of Financial and Quantitative Analysis , Volume 57 , Issue 8 , December 2022 , pp. 3081 - 3113
- Copyright
- © The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Footnotes
We thank an anonymous referee and Mara Faccio (the editor) for helpful comments, which significantly improved the article. We also thank Murray Frank, Ron Masulis, Renee McKibbin, Mathew Ringenberg, and Harry Scheule, and seminar participants at the Australian National University, the Centre for Applied Macroeconomic Analysis (CAMA), and the University of Technology Sydney for helpful comments and discussions.
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