De Facto Bank Bailouts
50 Pages Posted: 20 Apr 2020 Last revised: 2 Oct 2020
Date Written: October 2, 2020
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: Suggested Citation