Financial policymaking after crises: Public versus private interest

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Financial crises invariably lead governments to intervene in one way or another, whether to ease the damage to middle-class voters, to respond to the anti-finance sentiment, or to introduce new policies favouring the financial industry. This column traces policy interventions back to policymakers’ incentives. Financial crises lead governments to re-regulate financial markets only in democratic settings. Politicians who are facing a term limit are substantially more likely to re-regulate financial markets after crises in ways compatible with their private incentives. These privately motivated interventions operate via controversial policy domains and favour incumbent banks in countries with more revolving doors between political and financial institutions.

Published on VoxEU