This paper develops a formula to numerically estimate the unsubsidized, fair-market value of the toxic assets purchased with Federal Reserve loans. It finds that subsidy rates on these loans were on average 33.9 percent at origination. In contrast, by the 3rd quarter of the 2010, there was on...

The economic and financial crisis of the year 2008 highlighted the need for banking sector regulation via the creation of the banking union. The Bank Recovery and Resolution Directive (BRRD) represents an important milestone in the formation of the banking union. It is supposed inter alia to...

This paper studies the link between bank recapitalization and welfare in a dynamic production economy. The model features financial frictions because banks benefit of a cost advantage at monitoring firms and face costly equity issuance. The competitive equilibrium outcome is inecient because...

This study quantitatively and qualitatively reviews long-term changes in “zombie firms” in Japan over a half-century from the early 1970s to the end of the 2010s. We use a unified framework in which the concept of “zombie firms” includes possible efficient bailouts. Moreover, using...

Using a database of 189,000+ Colombian firms, I study the effect of CEOs' centrality and political connections on access to PAEF ("Programa de Apoyo al Empleo Formal"), a government bailouts program launched to subsidy wages in the first stages of COVID-19 crisis, and the ex-post economic...

I develop a theoretical model for investigating the cost of failure to commit in the provision of bailouts to financial institutions. When a financial institution fails, the fiscal authority often deviates from its ex ante no-bailout commitment: the ex post best response is to bail out. The...

This paper introduces a theoretical model to analyze the optimal bailout policy in an inter-connected banking system. The model intends to highlight two motivations behind providing a partial bailout to banks in distress: prevention of costly bankruptcies and prevention of financial contagion....

Two hypotheses are usually advanced to explain the East Asian twin financial and exchange rate crises in 1990's. The first, stresses market failure, namely the sudden shift in market sentiment that rapidly propagated itself regionally and which lead to financial turmoil. According to this view,...

This paper proposes a quantitative theory of the interaction between private and public debt in an open economy. Excessive private debt increases the frequency of financial crises. During such crises the government provides fiscal bailouts financed with risky public debt. This response may cause...

We analyze the determinants and the long-run consequences of government interventions in the eurozone banking sector during the 2008/09 financial crisis. Using a novel and comprehensive dataset, we document that fiscally constrained governments “kicked the can down the road” by providing...

This paper analyzes country bailouts in a monetary union within a framework where sovereign default and exit from the union are two separate decisions. The studied bailouts are meant to prevent an exit and, thus, do not exclude subsequent defaults. The model replicates the experience of Greece,...

We study optimal bailout policies in the presence of banking and sovereign crises. First, we use European data to document that asset guarantees are the most prevalent way in which sovereigns intervene during banking crises. Then, we build a model of sovereign borrowing with limited commitment,...

I develop a theoretical model for investigating the cost of failure to commit in the provision of bailouts to financial institutions. When a financial institution fails, the fiscal authority often deviates from its ex ante no-bailout commitment: the ex post best response is to bail out. The...

We show that the COVID-19 pandemic triggered a surge in the elasticity of non-financial corporate to sovereign credit default swaps in core EU countries, characterized by strong fiscal capacity. For peripheral countries with lower budgetary slackness, the pandemic had essentially no impact on...

We empirically evaluate the impact of the new resolution policy, the so-called Bank Recovery and Resolution Directive (BRRD) enacted in 2016, on the cost of funding for EU banks. We first measure the change in the spreads of credit default swaps on subordinated and senior bonds issued by EU...

We show that the COVID-19 pandemic triggered a surge in the elasticity of non-financial corporate to sovereign credit default swaps in core EU countries, characterized by strong fiscal capacity. For peripheral countries with lower budgetary slackness, the pandemic had essentially no impact on...

We empirically examine the Capital Purchase Program (CPP) used by the US gov- ernment to bail out distressed banks with equity infusions during the Great Recession. We find strong evidence that a feature of the CPP – the government’s ability to ap- point independent directors on the board of...

We empirically examine the Capital Purchase Program (CPP) used by the US government to bail out distressed banks with equity infusions during the Great Recession. We find strong evidence that a feature of the CPP - the government's ability to appoint independent directors on the board of an...

This paper analyzes the evolution of Milton Friedman’s thinking about bailouts. It covers bailouts of commercial banks, shadow banks and other financial firms, manufacturing firms, governments, financial markets, and other cases where the term is commonly used. It is based on his academic...

How will sovereign debt markets evolve in the 21st century? We survey how the literature has responded to the eurozone debt crisis, placing "lessons learned" in historical perspective. The crisis featured: (i) the return of debt problems to advanced economies; (ii) a bank-sovereign "doom-loop"...

The determinants and effects of bank bailout programs on the economy and society are still controversial. Using a Propensity Score Matching approach relying on 22 European countries, it was identified economic growth, economic freedom, total banking assets, and liquid assets to deposits and...

We model a banking union of two countries whose banking sectors differ in their average probability of failure and externalities between the two countries arise from cross-border bank ownership. The two countries face (i) a regulatory decision of which banks are to be shut down before they can...