What Do We Know about the Impact of Government Interventions in the Banking Sector? The Assessment of Various Bailout Programs on Bank Behavior

41 Pages Posted: 27 Mar 2013 Last revised: 8 Apr 2013

See all articles by Aneta Hryckiewicz

Aneta Hryckiewicz

Economic Institute for Empirical Analysis, Kozminski University

Date Written: March 26, 2013

Abstract

The systemic banking crises placed enormous pressure on national governments to intervene. The empirical literature is mute on what the optimal bailout program should look like to mitigate the negative consequence of government intervention in the banking sector. We document that, in general, government interventions have a negative impact on banking sector stability, increasing its risk significantly afterwards. Our results show that nationalization and Asset Management Companies (AMCs) among the restructuring measures, and public guarantees among the liquidity support mechanisms, tend to contribute to the risk effect the most. The optimal bailout package should include mechanisms aimed at strengthening market monitoring in the post-crisis period. Liquidity provisions and government-assisted mergers are an example of such a strategy.

Keywords: government Interventions, crisis, bailout, financial stability

JEL Classification: G21, G28

Suggested Citation

Hryckiewicz, Aneta, What Do We Know about the Impact of Government Interventions in the Banking Sector? The Assessment of Various Bailout Programs on Bank Behavior (March 26, 2013). Available at SSRN: https://ssrn.com/abstract=2239816 or http://dx.doi.org/10.2139/ssrn.2239816

Aneta Hryckiewicz (Contact Author)

Economic Institute for Empirical Analysis, Kozminski University ( email )

ul. Jagiellonska 57/59
Warsaw, 03-303
Poland
(22) 519 21 69 (Phone)

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