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Post-crisis Fiscal Policy$
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Carlo Cottarelli, Philip Gerson, and Abdelhak Senhadji

Print publication date: 2014

Print ISBN-13: 9780262027182

Published to MIT Press Scholarship Online: September 2015

DOI: 10.7551/mitpress/9780262027182.001.0001

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Financial Sector Support: Why Did Costs Differ So Much?

Financial Sector Support: Why Did Costs Differ So Much?

Chapter:
(p.393) 14 Financial Sector Support: Why Did Costs Differ So Much?
Source:
Post-crisis Fiscal Policy
Author(s):

Ceyla Pazarbasioglu

Uffe Mikkelsen

Suchitra Kumarapathy

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262027182.003.0015

This chapter examines the support provided by central banks and governments to the financial sector during the 2007 financial crisis, with particular emphasis on the extent to which costs differed across countries. More specifically, it considers the types of central bank and government support received by the financial sector during the crisis and quantifies the initially pledged and actually utilized government support measures across countries. The chapter shows that extensive public support has been provided to restore confidence in the financial system. As the crisis unfolds, its fiscal costs remain uncertain, but so far it is evident they have differed widely across countries. Compared to previous crises, governments to date have relied more on containment—through central bank liquidity provision and guarantees of bank liabilities—and less on restructuring bank assets. This approach has given rise to large contingent liabilities as risks are transferred from private to government balance sheets, but in most cases the approach has limited initial fiscal outlays, especially the much needed restructuring of banking and corporate sectors.

Keywords:   central banks, financial sector, financial crisis, government support, financial system, fiscal costs, contingent liabilities, risks, banking, financial restructuring

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