Juridical and Financial Considerations on the Public Re-Capitalisation and Rescue of Financial Institutions During Periods of Financial Crises (Part I)
José Antonio Rodriguez-Miguez
Instituto de Derecho Industrial de la Universidad de Santiago de Compostela (IDIUS)
Marianne Ojo (LLM,PhD)
Oxford Brookes University - School of Social Sciences and Law; The Institute for Business and Finance Research, LLC
August 12, 2010
Journal of Economic Literature, Forthcoming
As well as a consideration of why the lender of last resort facility should be used for emergency situations and systemically relevant institutions in particular, an interesting point which will be considered in this paper is the comparison between the European Central Bank (ECB) Recommendation and its application by the Commission in the Re capitalisation Communication, specifically with its Annex, where the Commission explains how it determines the price of equity or own funds (ordinary or common shares) - balancing the “real value” with the “market value” within a crisis context. This paper will also consider how to transform the Crisis into an opportunity in order to minimise tax burdens to taxpayers – as well as making financial markets more efficient.
Furthermore, whether the Commission and Member States have applied the methodology (the determination of the price of equity – as stated in the Annex to the Re capitalisation Communication) in determining the price of equity with respect to the capital of banks acquired by Member States, will be addressed. Such consideration could provide a vital key to determining the real value of State Aid and the best possible price for which capital could be sold.
Given the scale of government intervention and State rescues which occurred during the recent crisis – as well as the prominence accorded to measures aimed at preventing and limiting distortions of competition, calls have been made for competition authorities to take on more formidable roles in designing and implementing exit strategies. In order to foster competition as much as possible, it is proposed that ”governments should provide financial institutions with incentives to prevent them from depending on government support once the economy begins to recover.”
Number of Pages in PDF File: 74
Keywords: Financial Crisis, re-capitalisation, MEIP, guarantees, Troubled Asset Relief Program (TARP), fundamentally sound institutions, rescues, restructuring, recovery.Accepted Paper Series
Date posted: July 23, 2010 ; Last revised: October 18, 2010
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