Fiscal Aspects of Bank Restructuring
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Summary:
Governments frequently assist troubled banks. This paper examines the fiscal aspects of such assistance: rationale, design criteria, methods, and macroeconomic implications. It concludes that (1) banks should be assisted only when there is a clear systemic risk; (2) assistance should be tied to a comprehensive restructuring program, minimize fiscal cost, be equitable and transparent, prevent recurrence, and facilitate a sound macroeconomic environment; (3) debt-based assistance will worsen public sector debt sustainability and will probably increase aggregate demand; and (4) assistance may require a substantial fiscal response (especially given the possible need for a looser monetary stance), which should feed iteratively into the choice of restructuring strategy.
Series:
Working Paper No. 1997/052
Subject:
Bank resolution Bank solvency Banking Commercial banks Expenditure Financial crises Financial institutions Financial sector policy and analysis Fiscal policy Fiscal stance
English
Publication Date:
April 1, 1997
ISBN/ISSN:
9781451847215/1018-5941
Stock No:
WPIEA0521997
Pages:
33
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