Fiscal Aspects of Bank Restructuring

Author/Editor:

James Daniel

Publication Date:

April 1, 1997

Electronic Access:

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

Disclaimer: This Working 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:

Governments frequently assist troubled banks. This paper examines the fiscal aspects of such assistance: rationale, design criteria, methods, and macroeconomic implications. It concludes that (1) banks should be assisted only when there is a clear systemic risk; (2) assistance should be tied to a comprehensive restructuring program, minimize fiscal cost, be equitable and transparent, prevent recurrence, and facilitate a sound macroeconomic environment; (3) debt-based assistance will worsen public sector debt sustainability and will probably increase aggregate demand; and (4) assistance may require a substantial fiscal response (especially given the possible need for a looser monetary stance), which should feed iteratively into the choice of restructuring strategy.

Series:

Working Paper No. 1997/052

Subject:

Bank resolution Bank solvency Banking Commercial banks Expenditure Financial crises Financial institutions Financial sector policy and analysis Fiscal policy Fiscal stance

English

Publication Date:

April 1, 1997

ISBN/ISSN:

9781451847215/1018-5941

Stock No:

WPIEA0521997

Pages:

33

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