Unconventional Bank Bailouts in Fixed Exchange Rate Regimes

Central Banks have traditionally rescued banks only indirectly by monetizing or purchasing government debt sold to finance a bailout. However, over the last few years, monetary authorities have started using less conventional methods to directly restore bank viability. These methods include quantitative and qualitative easing which compliment the more traditional method of debt monetization. The present paper studies the effectiveness of these bailout strategies and articulates some original policy options now available to central banks with currency targets.