Public Funding of Banks and Firms in a Time of Crisis

97 Pages Posted: 28 Jun 2022 Last revised: 14 Apr 2023

See all articles by Markus Haavio

Markus Haavio

Bank of Finland - Research

Antti Ripatti

Bank of Finland; University of Helsinki

Tuomas Takalo

Bank of Finland

Multiple version iconThere are 2 versions of this paper

Date Written: June 27, 2022

Abstract

We study public funding of banks and non-financial firms in a time of crisis. We find that bank capitalization is more effective in stabilizing the economy than direct funding to firms, but it also creates larger distortions. We show that the optimal, social-welfare-maximizing, structure of a public funding program depends on its size. Small funding programs should target banks while large programs should be directed at non-financial firms.

Keywords: economic crises, optimal public funding, financial frictions, macro-financial linkage

JEL Classification: E44, G21, G28, G38, H12, H81

Suggested Citation

Haavio, Markus and Ripatti, Antti and Ripatti, Antti and Takalo, Tuomas, Public Funding of Banks and Firms in a Time of Crisis (June 27, 2022). Bank of Finland Research Discussion Paper No. 8/2022, Available at SSRN: https://ssrn.com/abstract=4148306 or http://dx.doi.org/10.2139/ssrn.4148306

Markus Haavio (Contact Author)

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Antti Ripatti

Bank of Finland ( email )

Box 160
Helsinki, 00101
Finland

University of Helsinki ( email )

P.O. Box 17
Helsinki, 00014
Finland
+358505203679 (Phone)

HOME PAGE: http://www.ripatti.net

Tuomas Takalo

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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