Browse

You are looking at 1 - 2 of 2 items for :

  • General Financial Markets: Government Policy and Regulation x
  • Banks and banking x
  • Political Economy x
Clear All
Lane Timothy D.

Clearing up bad loans and recapitalizing insolvent banks can have important allocative effects, opening the way to more efficient allocation of credit and pricing of risk. This paper discusses whether the first-round fiscal and monetary effects associated with the government’s payment of interest on recapitalization bonds are important. It first discusses a benchmark case in which these first-round effects are irrelevant, and then examines some qualifications to this result. It concludes that the fiscal impact of recapitalization does not, in general, correspond to interest paid on recapitalization bonds.

Jihad Dagher
Financial crises are traditionally analyzed as purely economic phenomena. The political economy of financial booms and busts remains both under-emphasized and limited to isolated episodes. This paper examines the political economy of financial policy during ten of the most infamous financial booms and busts since the 18th century, and presents consistent evidence of pro-cyclical regulatory policies by governments. Financial booms, and risk-taking during these episodes, were often amplified by political regulatory stimuli, credit subsidies, and an increasing light-touch approach to financial supervision. The regulatory backlash that ensues from financial crises can only be understood in the context of the deep political ramifications of these crises. Post-crisis regulations do not always survive the following boom. The interplay between politics and financial policy over these cycles deserves further attention. History suggests that politics can be the undoing of macro-prudential regulations.