a column by Taneli Mäkinen, Lucio Sarno and Gabriele Zinna for VOX: CEPR’s Policy Portal
During the recent financial crises, government guarantees helped reduce the funding costs of banks by providing them with insurance, thus curbing panic in banking systems and financial markets.
This column argues, however, that these beneficial effects can be attenuated when guarantees are risky in the sense that they offer weaker protection in recessions, when the guarantor is more vulnerable, or the guarantees are less certain. Using a large international panel of banks, a significant risk premium is found to be associated with implicit government guarantees.
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Showing posts with label bailouts. Show all posts
Showing posts with label bailouts. Show all posts
Monday, 23 September 2019
Tuesday, 15 January 2019
Bailing out the people: The public cost of excess private debt
a column by Samba Mbaye, Marialuz Moreno Badia and Kyungla Chae for VOX: CEPR’s Policy Portal
Since the financial crisis researchers have extensively explored the dangers of excessive public debt, but excessive private debt has received less attention.
This column documents a common form of indirect private sector bailout that goes largely unnoticed. Whenever households and firms are caught in a debt overhang and need to deleverage, governments come to the rescue through a countercyclical rise in public debt. This indirect substitution takes place even in the absence of a crisis.
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Since the financial crisis researchers have extensively explored the dangers of excessive public debt, but excessive private debt has received less attention.
This column documents a common form of indirect private sector bailout that goes largely unnoticed. Whenever households and firms are caught in a debt overhang and need to deleverage, governments come to the rescue through a countercyclical rise in public debt. This indirect substitution takes place even in the absence of a crisis.
Continue reading
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