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The long shadow of the global financial crisis: public interventions in the financial sector

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The IMF paper presents a new dataset on public interventions in the financial sector since the global financial crisis. Through these data, the authors track both gross interventions and recovery in over 1.100 individual financial institutions across 37 countries. Direct public support to financial institutions amounted to $1.6 trillion ($3.5 trillion including guarantees), with larger amounts allocated to lower capitalized and less profitable banks. As of end-2017, only a few countries had fully divested the initial support they provided during the crisis. The paper contributes to greater transparency in recording the fiscal implications of financial sector support. The authors will thereby advance the discussion on data availability, transparency, and accountability.

IMF working paper No. 19/164
30 July 2019
Source: International Monetary Fund

Authors:
Deniz Igan, International Monetary Fund
Hala Moussawi, International Monetary Fund
Alexander Tieman, International Monetary Fund
Aleksandra Zdzienicka, International Monetary Fund
Giovanni Dell’Ariccia, International Monetary Fund
Paolo Mauro, International Monetary Fund

>  The long shadow of the global financial crisis: public interventions in the financial sector

Abstract:

We track direct public interventions and public holdings in 1,114 financial institutions over the period 2007–17 in 37 countries based on publicly available information. We use aggregate official data to validate this new dataset and estimate the fiscal impact of interventions, including the value of asset holdings remaining in state hands at end-2017. Direct public support to financial institutions amounted to $1.6 trillion ($3.5 trillion including guarantees), with larger amounts allocated to lower capitalized and less profitable banks. As of end-2017, only a few countries had fully divested the initial support they provided during the crisis. Public holdings were divested faster in better capitalized, more profitable, and more liquid banks, and in countries where the economy recovered faster. In countries where the government stake remained high relative to the initial intervention, private investment and credit growth were slower, financial access, depth, efficiency, and competition were worse, and financial stability improved less.

Conclusions:

This paper presents a new dataset on public interventions in the financial sector since the global financial crisis. Through these data, we track both gross interventions and recovery in over 1,100 individual financial institutions across 37 countries. The dataset is validated against aggregate country level data. As the latter include impaired assets on government balance sheets and revenue and expenditure streams from public asset holdings, we are able to assess the total fiscal impact of public interventions in the financial sector.

This effort contributes to greater transparency in recording the fiscal implications of financial sector support. Nevertheless, data availability and transparency remain issues in many countries. Data are often not easily accessible and inconsistent across countries, or, in some cases remain confidential even a decade after the onset of the crisis. Such practices hinder the evaluation of crisis intervention and resolution measures. We hope this paper will advance the discussion on data availability, transparency, and accountability.

Going forward, we aim to build on these datasets to provide more in-depth analysis of public interventions. Some interesting questions we plan to examine revolve around the interaction between bank size and government interventions, the macro-financial environment’s effect on recovery and divestment rates, the factors underlying the choice of deploying different instruments in asset purchases, and the long-term consequences of government interventions in the financial sector including on growth, stability, and market structure.

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