The stability of public finances can come under threat if public funds are used to rescue failing financial institutions. In the case of the 2007/08 financial crisis, fiscal policy played a role in limiting contagion from the failure of individual banks to the banking system.
But this stabilising role came at the cost of a significant increase in public debt and of potential expectations of future bailouts. Through the conversion of implicit subsidies for the financial sector into explicit ones, unsustainable levels of private debt can thus spill over into the public sphere. High levels of debt can lead to fiscal or financial dominance.