GOVERNMENT bailouts of banks may have made Europe’s fragile economic stability worse rather than better, according to new large-scale research.
The research, led by Dr Renatas Kizys, an economist at the University of Portsmouth, is the first to suggest large-scale rescues of banks do not stabilise the banking sector or a country’s economy but instead appear to have the opposite effect.
Dr Kizys said: ‘The results go against conventional wisdom but we have found clear evidence of a strong two-way loop between banks facing a crisis and governments stepping in to help them resulting in a higher cost to the public sector.
The research team examined data from the financial sector from March 2005 to June 2013. They studied more than 2,000 daily observations of various metrics.