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IMF Staff Papers Logo last updated: December 2001
Volume 48, Number 1
 
Recapitalizing Banks with Public Funds
By Charles Enoch, Gillian Garcia, and V. Sundararajan

Full Text of this Article (PDF 180 K)

Abstract: Recapitalizing banks in a systemic crisis is a complex medium-term process that requires significant government intervention and careful management at both the strategic and individual bank levels. This paper examines the range of operational and strategic issues involved and the institutional arrangements needed to foster an effective banking system restructuring, as well as maximize the returns on government investment. Recapitalization approaches have varied in the different mixes of direct capital injections and asset purchases and rehabilitation that countries choose. The choice of an appropriate mix is critical to minimizing the expected present value of government outlays net of recoveries. [JEL G1, G21, G32, H81, O16]

© 2001 International Monetary Fund