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The study shows that the likelihood a defaulting sovereign is granted an IMF loan is increasing with US banks’ exposures to its country. The authors argue the US government uses its voting power in the IMF to direct IMF funds to countries where US banks stand to lose the most from sovereign default – a de facto bailout. Consistent with this, they show that (1) US Congressional voting on IMF funding increases is consistent with special (banking) interests; and (2) US bank stocks’ market reaction to the announcement of an IMF loan increases with its exposure to the defaulting sovereign.
Phong Ngo is a Senior Lecturer with Research School of Finance, Actuarial Studies and Statistics which is part of College of Business and Economics at The ANU. His research interests are banking, political economy and the role of government, corporate finance and corporate behavior and applied microeconomics. His work has been published in leading journals such as the Journal of Financial Economics and The Review of Financial Studies.
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