Of Bailouts and Rescue Measures: Subsidies in Financial Services

Panagiotis Delimatsis

Papers from World Trade Institute

Abstract: As the recent financial crisis started unfolding, governments intervened through substantive subsidies and other benefits towards financial institutions to avoid their collapse. In addition, various stimulus packages were endorsed to rescue various sectors of the economy, including the financial sector, thereby creating possible distortions and unfair advantages for certain service suppliers. After a review of the measures taken which are dubious from a WTO perspective, this paper intends to examine the current legal discipline within the WTO and to assess the bite of the relevant legal provisions under the General Agreement on Trade in Services (GATS) absent any meaningful provisions relating to subsidies in the service sector. As financial reform at the domestic level takes shape, the time appears to be ripe for the conclusion of the negotiations on subsidies and safeguards within the GATS. In the meantime, close monitoring of the subsidized banks and the new players that emerged from mergers among financial institutions is required to ensure that no market distortions are maintained in the post-crisis landscape.

Date: 2012-05-15
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