Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248317 
Year of Publication: 
2021
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2021-56
Publisher: 
Bank of Canada, Ottawa
Abstract: 
The financial sector bailouts seen during the Great Recession generated substantial opposition and controversy. We assess the welfare benefits of government-funded emergency support to the financial sector, taking into account its effects on risk-taking incentives. In our quantitative general equilibrium model, the financial crisis probability depends on financial intermediaries' balance sheet choices, influenced by capital adequacy constraints and ex ante known emergency support provisions. These policy tools interact to make financial sector bailouts welfare improving when capital adequacy constraints are consistent with the current Basel III regulation, but potentially welfare decreasing with looser capital adequacy regulation existing before the Great Recession.
Subjects: 
Financial system regulations and policies
Financial institutions
Financial stability
JEL: 
E44
D62
G01
E32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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