The (In)Effectiveness of Announcements of Banking Bailouts

38 Pages Posted: 29 Feb 2012 Last revised: 12 May 2014

See all articles by Michele U. Fratianni

Michele U. Fratianni

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

Francesco Marchionne

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

Date Written: December 5, 2011

Abstract

We analyze the effectiveness of government policies aimed at shoring up banks’ financial conditions during the 2008-2009 financial crisis. Governments injected into troubled institutions massive amounts of fresh capital and/or guaranteed bank assets and liabilities. We employ event study methodology to estimate the impact of government-intervention announcements on bank valuation. Using traditional approaches, 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. Findings are consistent with the hypothesis that individual institutions were reluctant to seek public assistance. However, when we correct standard errors for bank-and-time effects, virtually all announcement impacts vanish. The policy implication is that the large public commitments were either not credible or deemed inadequate relative to the underlying financial difficulties of banks.

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

JEL Classification: G01, G21, N20

Suggested Citation

Fratianni, Michele and Marchionne, Francesco, The (In)Effectiveness of Announcements of Banking Bailouts (December 5, 2011). Available at SSRN: https://ssrn.com/abstract=2012408 or http://dx.doi.org/10.2139/ssrn.2012408

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)

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)

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