Issuing Government Bonds to Finance Bank Recapitalization and Restructuring: Design Factors that Affect Banks' Financial Performance

Author/Editor:

Michael Andrews

Publication Date:

November 1, 2003

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Policy Dicussion Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Bonds issued by the government or government agencies are often used to finance bank restructuring following a systemic crisis. Many conflicting considerations affect the design of the bonds used to pay for public sector investment in bank equity or the purchase of distressed assets from banks. Some bond features can leave restructured banks facing significant risks, laying the foundation for future banking sector problems. Sovereign default makes publicly financed bank restructuring more difficult, but it is still possible to carry out if banks receive sufficient interest income to provide a margin over their cost of funds.

Series:

Policy Discussion Paper No. 2003/004

Subject:

Bank resolution Banking Bond ratings Bonds Financial crises Financial institutions Public debt Sovereign bonds

English

Publication Date:

November 1, 2003

ISBN/ISSN:

9781451973662/1564-5193

Stock No:

PPIEA0042003

Pages:

31

Please address any questions about this title to publications@imf.org