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State Aid and Bank Intervention: The ING Illiquid Assets Back-up Facility (IABF)

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Author Info

  • Sweder van Wijnbergen

    ()
    (University of Amsterdam)

  • Leontine Treur

Abstract

The ING Illiquid Assets Back-up Facility announced January 2009 was a SWAP-based insurance to reduce ING’s exposure to Alt-A related risk. Did the deal involve state aid? Usingmarketprices to evaluate the SWAP directly is impossible because markets for Alt-A based CDOs had collapsed. We therefore assess the deal’s impact on the market’s valuation of ING to answer the question. We need to correct for two concurrent events: the announcement of the fourth quarter results and the CEO. We find state aid to be between 1.1 and 2.2 b€. Thus the European Commission's estimate that the IABF entails b€ 5 state aid is at variance with the assessment derived from market based valuations. Moreover, the intervention only had asignificant impact on equity values and apparently not on debt values, indicating that ING was sufficiently capitalized.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-146/2/DSF26.

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Date of creation: 10 Oct 2011
Date of revision: 27 Oct 2011
Handle: RePEc:dgr:uvatin:20110146

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Web page: http://www.tinbergen.nl

Related research

Keywords: bank intervention; asset swap; guarantees;

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  1. Palmrose, Zoe-Vonna & Richardson, Vernon J. & Scholz, Susan, 2004. "Determinants of market reactions to restatement announcements," Journal of Accounting and Economics, Elsevier, vol. 37(1), pages 59-89, February.
  2. Dherment-Ferere, I. & Renneboog, L.D.R., 2000. "Share Price Reactions to CEO Resignations and Large Shareholder Monitoring in Listed French Companies," Discussion Paper 2000-70, Tilburg University, Center for Economic Research.
  3. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises," IMF Working Papers 10/146, International Monetary Fund.
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