De Facto Bank Bailouts
forthcoming in the Journal of Financial and Quantitative Analysis
75 Pages Posted: 20 Apr 2020 Last revised: 6 Jul 2021
Date Written: June 30, 2021
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.
Keywords: sovereign defaults, bailouts, International Monetary Fund, political economy, U.S. banking
JEL Classification: F50, G15, G21, H81
Suggested Citation: Suggested Citation