Determinants of European Banks' Bailouts Following the 2007-2008 Financial Crisis

Journal of International Economic Law, Forthcoming

49 Pages Posted: 29 Jun 2016

See all articles by Catarina Fernandes

Catarina Fernandes

Polytechnic Institute of Braganca

Jorge Farinha

University of Porto - Faculdade de Economia do Porto

Francisco Martins

Universidade do Porto - Faculdade de Economia (FEP)

Cesario Mateus

Aalborg University

Date Written: June 28, 2016

Abstract

Extraordinary amounts of public funds and/or assistance were made available to banks since the onset of the 2007-2008 financial crisis. Governments worldwide have launched a massive bailout package to support banks in distress. Using a probit model, this paper investigates the likelihood of bailouts following the financial crisis. Our results lead us to conclude that the governance characteristics of banks, specifically the characteristics of boards, bank risks, as well as bank-level and country-specific banking sector features, explain the likelihood of bailouts in the European banking sector. In particular we find that board banking experience, longer directors’ tenure, less busy boards and the existence of a corporate governance committee decrease the likelihood of banks participating in a bailout programme. Inversely, board independence, credit and liquidity risks increase the probability of banks being bailed out. Furthermore, fewer limitations on banking freedom and greater openness of the banking sector have a harmful impact on the occurrence of bailouts. Our study therefore suggests relevant policy implications, which might help supervisors, regulators and other public authorities in avoiding costly bailouts.

Suggested Citation

Fernandes, Catarina and Farinha, Jorge and Martins, Francisco and Mateus, Cesario, Determinants of European Banks' Bailouts Following the 2007-2008 Financial Crisis (June 28, 2016). Journal of International Economic Law, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2801470

Catarina Fernandes

Polytechnic Institute of Braganca ( email )

Rua João Maria Sarmento Pimentel
Apartado 128
Braganca, Mirandela 5370-326
Portugal

Jorge Farinha

University of Porto - Faculdade de Economia do Porto ( email )

Rua Dr. Roberto Frias
Porto, 4200-464
Portugal
(351)-22-5575100 (Phone)
(351)-22-5505050 (Fax)

HOME PAGE: www.fep.up.pt

Francisco Martins

Universidade do Porto - Faculdade de Economia (FEP)

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

Cesario Mateus (Contact Author)

Aalborg University

Fredrik Bajers Vej 7E
Aalborg, DK-9220
Denmark

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