Abstract
This paper documents the characteristics of public recapitalizations of banks undertaken since 2008 and examines their relationship with bank lending. The analysis covers the 15 OECD countries whose banking sectors were most severely hit by the crisis and that provided the largest public bailouts relative to their national gross domestic product (GDP). We show that the design of the interventions varied considerably across banks and countries. Larger and higher loss-absorbing capital injections were targeted at weaker banks and at banks of ‘systemically relevant’ size, when the state of public finances allowed. Our results encourage theoretical research with respect to non-linear and potentially adverse effects of bailouts, as well as further investigation into the link between the loss absorbing properties of bank capital and loan growth. With respect to bank lending, we find that only large recapitalizations and infusions of common equity are associated with higher total regulatory capital ratios and sustained loan growth. We find no significant relationship between public capital provisions and interbank lending and challenge the view that local banks increase loan growth relatively more in response to a recapitalization. — Mike Mariathasan and Ouarda Merrouche
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.