De Facto Bank Bailouts

44 Pages Posted: 20 Apr 2020

See all articles by Phong T. H. Ngo

Phong T. H. Ngo

Australian National University (ANU)

Diego Puente M.

Australian National University (ANU)

Date Written: March 25, 2020

Abstract

We show that the likelihood a defaulting sovereign is granted an IMF loan is increasing in U.S. banks' exposure to that country. We argue the U.S. government uses its voting power in the IMF to direct IMF funds to countries where U.S. banks stand to lose the most from sovereign default -- a de facto bailout. Consistent with this, we show that (1) U.S. Congressional voting on IMF funding increases is consistent with special (banking) interests; and (2) U.S. bank stocks' market reaction to the announcement of an IMF loan increases with its exposure to the defaulting sovereign.

Keywords: sovereign defaults, bailouts, International Monetary Fund, political economy, U.S. banking

JEL Classification: F50, G15, G21, H81

Suggested Citation

Ngo, Phong T. H. and Puente Moncayo, Diego, De Facto Bank Bailouts (March 25, 2020). Available at SSRN: https://ssrn.com/abstract=3560858 or http://dx.doi.org/10.2139/ssrn.3560858

Phong T. H. Ngo (Contact Author)

Australian National University (ANU) ( email )

RSFAS, College of Business and Economics
Australian National University
Canberra, Australian Capital Territory 0200
Australia
+61 2 6125 1079 (Phone)

HOME PAGE: http://cbe.anu.edu.au/people/rsfas/phong-ngo/

Diego Puente Moncayo

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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