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Bank Capital, The Announcement Of The Federal Reserve'S Term Auction Facility, And Bank Borrowing During The Financial Crisis Of 2007–2008

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  • Mujtaba Zia
  • Imre Karafiath
  • Niranjan Tripathy

Abstract

During the financial crisis of 2007–2008, the Federal Reserve System created emergency lending facilities to address the liquidity problem in financial markets and alleviate the stigma attached to borrowing from its traditional lending facility, the discount window. The most important and commonly used facility was the Term Auction Facility (TAF) announced December 12, 2007. Using event‐study methodology, we find that stock prices of TAF participating banks experienced a significant −2.84% average cumulative abnormal return around the announcement date. The negative abnormal returns correlated with the peak loan balances reached on average 416 days after the announcement.

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  • Mujtaba Zia & Imre Karafiath & Niranjan Tripathy, 2018. "Bank Capital, The Announcement Of The Federal Reserve'S Term Auction Facility, And Bank Borrowing During The Financial Crisis Of 2007–2008," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 41(4), pages 485-506, December.
    • Handle: RePEc:bla:jfnres:v:41:y:2018:i:4:p:485-506
    DOI: 10.1111/jfir.12160
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    Cited by:

    1. Zhao, Zhiming & Li, Shasha & Tang, Huiling, 2021. "Write-down bonds, credit risk and imperfect information," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    2. Shan, Yimin & Chen, Yang & Xiao, Yajun, 2023. "Monetary policy as market stabilizer in the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 55(PB).

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