Public Funding of Banks and Firms in a Time of Crisis
94 Pages Posted: 25 Apr 2023
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Public Funding of Banks and Firms in a Time of Crisis
Number of pages: 94
Posted: 25 Apr 2023
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Public Funding of Banks and Firms in a Time of Crisis
Bank of Finland Research Discussion Paper No. 8/2022
Number of pages: 97
Posted: 28 Jun 2022
Last Revised: 14 Apr 2023
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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: Macro-finance, crisis management, public bailouts, economic and financial crises
Suggested Citation: Suggested Citation
Haavio, Markus and Ripatti, Antti and Ripatti, Antti and Takalo, Tuomas, Public Funding of Banks and Firms in a Time of Crisis. Available at SSRN: https://ssrn.com/abstract=4426882 or http://dx.doi.org/10.2139/ssrn.4426882
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