An Assessment of Financial Sector Rescue Programmes
80 Pages Posted: 15 May 2010 Last revised: 28 Oct 2010
Date Written: July 10, 2009
We analyse the wide array of rescue programmes adopted in several countries, following Lehman Brothers’ default in September 2008, in order to support banks and other financial institutions. We first provide an overview of the programmes, comparing their characteristics, magnitudes and participation rates across countries. We then consider the effects of the programmes on banks’ risk and valuation, looking at the behaviour of CDS premia and stock prices. We then proceed to analyse the issuance of government guaranteed bonds by banks, examining their impact on banks’ funding and highlighting undesired effects and distortions. Finally, we briefly review the recent evolution of bank lending to the private sector. We draw policy implications, in particular as regards the way of mitigating the distortions implied by such programmes and the need for an exit strategy.
Keywords: bank asset guarantees, capital injection, banks, financial sector, financial crisis, bank consolidation, bank mergers and acquisitions, event studies, government guaranteed bonds, credit crunch, exit strategy
JEL Classification: E58, E65, G14, G18, G21, G28, G32, G34
Suggested Citation: Suggested Citation