Public funding of banks and firms in a time of crisis
Haavio, Markus; Ripatti, Antti; Takalo, Tuomas (27.06.2022)
JulkaisusarjaBank of Finland Research Discussion Papers
JulkaisijaBank of Finland
Julkaisun pysyvä osoite onhttps://urn.fi/URN:NBN:fi:bof-202206271310
We study public funding of banks and non-financial firms in a time of crisis. We find that bank capitalization is more effective in stabilizing the economy than direct funding to firms, but it also creates larger distortions. We show that the optimal, social-welfare-maximizing, structure of a public funding program depends on its size. Small funding programs should target banks while large programs should be directed at non-financial firms.
A revised version published on 27 February 2023.