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

Valeriya Dinger, Lisardo Erman and Daniel te Kaat

Journal of Financial Stability, 2022, vol. 60, issue C

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.

Keywords: Banking crisis; Bailouts; Economic growth (search for similar items in EconPapers)
JEL-codes: E44 G01 G21 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:60:y:2022:i:c:s1572308922000134

DOI: 10.1016/j.jfs.2022.100984

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