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Fiscal Aspects of Bank Restructuring

  • James Daniel
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    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.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 97/52.

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    Length: 33
    Date of creation: 01 Apr 1997
    Date of revision:
    Handle: RePEc:imf:imfwpa:97/52
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