The Banking Bailout of the Subprime Crisis: Big Commitments and Small Effects?

Indiana Working Paper No. 2011-02

42 Pages Posted: 21 Jan 2011 Last revised: 12 May 2014

See all articles by Francesco Marchionne

Francesco Marchionne

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Università Politecnica delle Marche - Department of Economics

Michele U. Fratianni

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Universita' Politecnica delle Marche

Date Written: January 19, 2011

Abstract

This paper examines government policies aimed at rescuing banks from the effects of the financial crisis of 2008-2009. Governments responded to the crisis by guaranteeing bank assets and liabilities and by injecting fresh capital into troubled institutions. We employ event study methodology to estimate the benefits of government interventions on banks. Announcements directed at the banking system as a whole were associated with positive cumulative abnormal returns whereas announcements directed at specific banks with negative ones. The effects of foreign general announcements spilled over across different areas and were perceived by home-country banks as subsidies boosting the competitive advantage of foreign banks. Specific announcements produced effects that were consistent with other banks being crowded out for government resources. Multiple specific announcements exacerbated the extent of banks’ moral hazard. Results were sensitive to the information environment. Findings are consistent with the hypothesis that individual institutions were reluctant to seek public assistance.

Keywords: announcement, bank, event study, financial crisis, rescue plan

JEL Classification: G01, G21, N20

Suggested Citation

Marchionne, Francesco and Fratianni, Michele, The Banking Bailout of the Subprime Crisis: Big Commitments and Small Effects? (January 19, 2011). Indiana Working Paper No. 2011-02. Available at SSRN: https://ssrn.com/abstract=1743647 or http://dx.doi.org/10.2139/ssrn.1743647

Francesco Marchionne (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

1309 East Tenth Street
Bloomington, IN 47405-1701
United States
01 812 855-3756 (Phone)

HOME PAGE: http://kelley.iu.edu/BEPP/Faculty/page14113.cfm?ID=47081

Università Politecnica delle Marche - Department of Economics ( email )

Piazzale Martelli, 8
Ancona, 60121
Italy
+39 071 2207120 (Phone)

Michele Fratianni

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-3360 (Phone)
812-855-3354 (Fax)

Universita' Politecnica delle Marche ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
39-071-2207120 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
145
Abstract Views
908
rank
197,635
PlumX Metrics