De Facto Bank Bailouts

forthcoming in the Journal of Financial and Quantitative Analysis

75 Pages Posted: 20 Apr 2020 Last revised: 6 Jul 2021

See all articles by Phong T. H. Ngo

Phong T. H. Ngo

Australian National University (ANU)

Diego Puente-Moncayo

Australian National University (ANU)

Date Written: June 30, 2021

Abstract

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

Ngo, Phong T. H. and Puente Moncayo, Diego, De Facto Bank Bailouts (June 30, 2021). forthcoming in the Journal of Financial and Quantitative Analysis, 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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