Government interventions and default risk: Does one size fit all?
AbstractWe examine the effectiveness of the financial sector rescue packages provided by the national governments during the 2008 financial crisis. This study questions the implicit assumption that government interventions have an uniform effect on the default risk of individual banks. After testing the results for sensitivity, our main findings suggest that there exists a significant negative relationship between the announcement of the financial sector rescue packages and the daily change of the credit default premium. However, quantile regressions show that the effectiveness of these packages differs across banks: most interventions do not decrease the risk of intermediate to low-risk banks, while they do reduce the risk of high-risk banks. Besides, we find that interventions aimed at specific financial institutions are more effective in restraining banking risk than broad interventions taken to stabilize the financial market as a whole.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Stability.
Volume (Year): 9 (2013)
Issue (Month): 4 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/jfstabil
Default risk; Government interventions; Quantile regression;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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