Tons of money flowed from the government (tax payers’ money!) to large banks in the United States and Europe to fight against financial crises. The IMF has recently issued a report in which it calculated the size of such bailouts as well as proposed some reform agendas. Interestingly, the IMF characterized such bailouts as “subsidies.” The question that concerns us is: do these alleged subsidies violate the WTO norms?
There have been some discussions on the bailouts for auto companies (both in the United States and Europe) and their WTO consistency under the WTO SCM agreement. If bank bailout subsidies are subsidies within the WTO system, we may not invoke the SCM agreement since they concern trade in (financial) services. The GATS (Article XV) leaves this issue to future negotiations. Yet back in 2009 Simon Lester raised this very issue and hinted that these bank bailouts might violate Article XVII (National Treatment) of GATS in case a government exclusively bails out domestic banks. Note that GATS Article XVII does not have an equivalent of GATT Article III:8 (b) (“The provisions of this Article shall not prevent the payment of subsidies exclusively to domestic producers…”). Therefore, Simon’s interpretation might work here. Of course, subsidy-granting governments might argue that such bailouts belong to "prudential regulations" or any other form of acceptable "emergency safeguards."