An Assessment of Financial Sector Rescue Programmes

80 Pages Posted: 15 May 2010 Last revised: 28 Oct 2010

Thomas Faeh

Bank for International Settlements (BIS)

Giuseppe Grande

Bank of Italy

Corrinne Ho

Bank for International Settlements

Michael R. King

Ivey Business School

Aviram Levy

Bank of Italy

Fabio Panetta

Bank of Italy

Federico Maria Signoretti

Bank of Italy

Marco Taboga

Bank of Italy

Andrea Zaghini

Bank of Italy

Date Written: July 10, 2009

Abstract

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

Faeh, Thomas and Grande, Giuseppe and Ho, Corrinne and King, Michael R. and Levy, Aviram and Panetta, Fabio and Signoretti, Federico Maria and Taboga, Marco and Zaghini, Andrea, An Assessment of Financial Sector Rescue Programmes (July 10, 2009). Bank of Italy Occasional Paper No. 47. Available at SSRN: https://ssrn.com/abstract=1605182 or http://dx.doi.org/10.2139/ssrn.1605182

Thomas Faeh

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Giuseppe Grande

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy
+390647922643 (Phone)
+390647923723 (Fax)

Corrinne Ho

Bank for International Settlements ( email )

Centralbahnplatz 2
CH-4002 Basel, Basel-Stadt
Switzerland
00 41 61 280 9100 (Fax)

Michael Robert King

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/

Aviram Levy

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Fabio Panetta

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy
+39 06 4792 4143 (Phone)
+39 06 4792 3723 (Fax)

Federico Maria Signoretti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Marco Taboga

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Andrea Zaghini

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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