Bank Bailouts and Economic Growth: Evidence from Cross-Country, Cross-Industry Data

31 Pages Posted: 8 Apr 2021

See all articles by Valeriya Dinger

Valeriya Dinger

Universität Osnabrück

Lisardo Erman

Universität Osnabrück

Daniel te Kaat

University of Groningen

Date Written: March 29, 2021

Abstract

In this paper, we revisit the question to what extent bank bailouts affect economic growth. We adopt a broad concept of bailouts, which includes both capital injections and liquidity support to the banking system, and employ an identification strategy that controls for the various dimensions of endogeneity of bailouts. We find that liquidity support has a significant positive real economic effect, while the effect of recapitalizations per se is not statistically significant. However, the positive impact of liquidity support is driven by crises where central bank liquidity injections are accompanied by recapitalizations of the banking system. Employing bank-level data, we provide evidence that this is the case because better capitalized banks and banks in significantly recapitalized systems are more likely to provide loans, thus raising aggregate-level real economic growth.

Keywords: Banking Crisis, Bailouts, Economic Growth

Suggested Citation

Dinger, Valeriya and Erman, Lisardo and te Kaat, Daniel, Bank Bailouts and Economic Growth: Evidence from Cross-Country, Cross-Industry Data (March 29, 2021). Available at SSRN: https://ssrn.com/abstract=3814662 or http://dx.doi.org/10.2139/ssrn.3814662

Valeriya Dinger

Universität Osnabrück ( email )

Neuer Graben
Osnabrück, 49074
Germany

Lisardo Erman

Universität Osnabrück ( email )

Neuer Graben
Osnabrück, 49074
Germany

Daniel Te Kaat (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

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