Time to Buy or Just Buying Time? The Market Reaction to Bank Rescue Packages

38 Pages Posted: 2 Oct 2009  

Michael R. King

Ivey Business School

Date Written: September 1, 2009

Abstract

This paper reviews the market reaction to bank rescue packages announced in six countries between October 2008 and January 2009. The study distinguishes the impact on creditors as seen in the change of CDS spreads from the impact on shareholders as seen in the movement of bank stock prices. Government interventions benefited creditors at the expense of shareholders, with bank CDS spreads narrowing around the announcements in all cases. Despite a brief positive reaction, bank stock prices continued to underperform in all countries except the United States where the favourable terms of the government support allowed bank stocks to outperform.

Keywords: banking, rescue packages, stock prices, CDS spreads, financial crisis, event study

JEL Classification: G21, G14, G18

Suggested Citation

King, Michael R., Time to Buy or Just Buying Time? The Market Reaction to Bank Rescue Packages (September 1, 2009). BIS Working Paper No. 288. Available at SSRN: https://ssrn.com/abstract=1481578 or http://dx.doi.org/10.2139/ssrn.1481578

Michael Robert King (Contact Author)

Ivey Business School ( email )

Western University
1255 Western Road
London, Ontario N6G 0N1
Canada
519 661 3084 (Phone)

HOME PAGE: http://www.ivey.uwo.ca/faculty/directory/michael-king/

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