Financial Repression

DEFINITION of 'Financial Repression'

A term that describes measures by which governments channel funds to themselves as a form of debt reduction. This concept was introduced in 1973 by Stanford economists Edward S. Shaw and Ronald I. McKinnon. Financial repression can include such measures as directed lending to the government, caps on interest rates, regulation of capital movement between countries and a tighter association between government and banks. The term was initially used in response to the emerging market financial systems during the 1960s, '70s and '80s.

BREAKING DOWN 'Financial Repression'

In 2011, economists Carmen M. Reinhart and M. Belen Sbrancia hypothesized in a National Bureau of Economic Research (NBER) working paper entitled "The Liquidation of Government Debt" that governments could return to financial repression to deal with debt following the 2008 economic crisis.
Reinhart and Sbrancia indicate that financial repression features:


  1. Caps or ceilings on interest rates
  2. Government ownership or control of domestic banks and financial institutions
  3. Creation or maintenance of a captive domestic market for government debt
  4. Restrictions on entry to the financial industry
  5. Directing credit to certain industries
RELATED TERMS
  1. Macroprudential Analysis

    A method of economic analysis that evaluates the health, soundness ...
  2. Economics

    A social science that studies how individuals, governments, firms ...
  3. National Bureau of Economic Research ...

    This private, non-profit, non-partisan research organization's ...
  4. Interest Rate Cap Structure

    Limits to the interest rate on an adjustable-rate loan - frequently ...
  5. Macroeconomics

    The field of economics that studies the behavior of the aggregate ...
  6. Social Responsibility

    The idea that companies should embrace its social responsibilities ...
Related Articles
  1. Investing Basics

    Will Corporate Debt Drag Your Stock Down?

    Borrowed funds can mean a leg up for companies or the boot for investors. Find out how to tell the difference.
  2. Bonds & Fixed Income

    An Overview Of Corporate Bankruptcy

    If a company files for bankruptcy, stockholders have the most to lose. Find out why.
  3. Options & Futures

    Subprime Is Often Subpar

    Proceed with caution when considering these short-term, high-interest mortgages.
  4. Fundamental Analysis

    Is a U.S. Industrial Recession on the Horizon in 2016?

    Find out why the industrial economy may be teetering on an industrial recession and what could prevent it from going over the cliff.
  5. Fundamental Analysis

    Gloom and Doom for Global Markets in 2016?

    Learn about the volatility in global markets during the beginning of 2016. See why famous investors are saying some economies could see recessions.
  6. Economics

    Understanding the American Dream

    The American dream is the belief that anyone, regardless of where they’re born or into what class, can attain their own version of success.
  7. Investing News

    Is it the Right Time to Raise Interest Rates?

    Warning signs have started to emerge that point to a potentially dismal 2016 for the U.S. economy.
  8. Stock Analysis

    Worried About a Recession? Consider These 5 Stocks

    If you're worried about a recession, consider these five stocks that offer resiliency potential.
  9. Economics

    3 Economic Challenges Russia Faces in 2016

    Learn about the three largest challenges facing the Russian economy in 2016. How will low oil prices and high inflation impact the Russian economy?
  10. Economics

    Davos 2016, Day 1: No Crash, But Robots Are Taking Over

    Lagarde says chill out, Biden wants to rescue the middle class.
RELATED FAQS
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  3. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  4. How does the risk of investing in the industrial sector compare to the broader market?

    There is increased risk when investing in the industrial sector compared to the broader market due to high debt loads and ... Read Full Answer >>
  5. How can I hedge my portfolio to protect from a decline in the retail sector?

    The retail sector provides growth investors with a great opportunity for better-than-average gains during periods of market ... Read Full Answer >>
  6. What is the correlation between term structure of interest rates and recessions?

    There is no question that interest rates have enormous macroeconomic importance. Many economists and analysts believe the ... Read Full Answer >>
Hot Definitions
  1. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  2. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  3. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
  4. Dark Pool Liquidity

    The trading volume created by institutional orders that are unavailable to the public. The bulk of dark pool liquidity is ...
  5. Godfather Offer

    An irrefutable takeover offer made to a target company by an acquiring company. Typically, the acquisition price's premium ...
Trading Center