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CPP funds allocation : restoring financial stability or minimising risks of non-repayment to taxpayers ?

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  • Varvara Isyuk

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

Abstract

The U.S. Federal Reserve responded to liquidity shortage through compulsory loan guarantee scheme and bank recapitalisations mainly under Capital Purchase Program (CPP) for commercial banks. The bailout packages provided under CPP seem to be efficient in responding to the liquidity crisis subject to large banks that contributed the most to systemic risk. However, smaller banks that were actually exposed to the mortgage market and non-performing loans were denied the financial aid or received CPP funds of a relatively smaller size. Such CPP funds allocation was efficient from the point of view of taxpayer as the probability of bailout non-repayments was minimised. However, it did not support real estate loan recapitalisations that could become a reason of large welfare loses for the homeowners.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00755570.

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Date of creation: Sep 2012
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Handle: RePEc:hal:cesptp:halshs-00755570

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Keywords: Bailouts; bank recapitalisation; CPP funds; systemic risk.;

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Cited by:
  1. Varvara Isyuk, 2013. "Determinants of the Allocation of Funds Under the Capital Purchase Program," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 2(1), pages 79-114, January.

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