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Paulson Plan Credits

Author

Listed:
  • Eric De Bodt
  • Frédéric Lobez
  • Armin Schwienbacher

Abstract

The Capital Purchase Plan (CPP) is one of the main ingredients of the Paulson Plan. In accordance with the CPP, U.S. federal agencies invested more than $200 billion in approximately 700 financial institutions in 2008 and 2009. This article examines whether the CPP as a major public intervention helped to decrease financial institutions? systemic risk contribution. We use ?CoVaR (Adrian and Brunnermeier, 2016) as measure of systemic risk contribution, as well as a difference-in-difference test. Size, business model and CPP timing all matters when it comes to identify the effects of the CPP. In particular, October 2008 recipients, a limited sample of major industry players, underwent an increase in their systemic risk contribution after CPP funding. This result suggests either a moral hazard issue and/or an indirect effect of the financial industry restructuring in the wake of the Lehman Brothers collapse.

Suggested Citation

  • Eric De Bodt & Frédéric Lobez & Armin Schwienbacher, 2016. "Paulson Plan Credits," Finance, Presses universitaires de Grenoble, vol. 37(1), pages 97-120.
    • Handle: RePEc:cai:finpug:fina_371_0097
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