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Bank bailouts and economic growth: Evidence from cross-country, cross-industry data

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  • Dinger, Valeriya
  • Erman, Lisardo
  • te Kaat, Daniel Marcel

Abstract

In this paper, we revisit the question of how bank bailouts affect economic growth. We adopt a broad concept of bailouts, which includes both capital injections and liquidity support to the banking system. We employ an identification strategy that controls for the various dimensions of bailout endogeneity and find that liquidity support has a significant positive real economic effect. The effect of recapitalizations per se is not statistically significant, but they reinforce the positive impact of liquidity interventions. Utilizing bank-level data, we provide evidence that this is the case because better-capitalized banks and banks in significantly recapitalized systems have a higher propensity to lend, thus raising aggregate-level real economic growth.

Suggested Citation

  • Dinger, Valeriya & Erman, Lisardo & te Kaat, Daniel Marcel, 2022. "Bank bailouts and economic growth: Evidence from cross-country, cross-industry data," Journal of Financial Stability, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:finsta:v:60:y:2022:i:c:s1572308922000134
    DOI: 10.1016/j.jfs.2022.100984
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    More about this item

    Keywords

    Banking crisis; Bailouts; Economic growth;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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