De Facto Bank Bailouts

50 Pages Posted: 20 Apr 2020 Last revised: 2 Oct 2020

See all articles by Phong T. H. Ngo

Phong T. H. Ngo

Australian National University (ANU)

Diego Puente M.

University of Technology Sydney (UTS; Australian National University (ANU)

Date Written: October 2, 2020

Abstract

The U.S. government uses its voting power 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, the likelihood a defaulting sovereign is granted an IMF loan is increasing in U.S. banks' exposure to that country. This effect is stronger in years when the political and fiscal costs of direct bailouts are higher. Further, U.S. Congressional voting on IMF funding increases responds to special interests (campaign contributions) but not to constituency exposure to sovereign default. De facto bailouts thus represent a private interest view of government.

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 (October 2, 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

University of Technology Sydney (UTS ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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