Juridical and financial considerations on the public re capitalisation and rescue of financial institutions during periods of financial crises
AbstractAs well as a consideration of why the lender of last resort facility should be used for emergency situations and systemically relevant institutions in particular, an interesting point which will be considered in this paper is the comparison between the European Central Bank (ECB) Recommendation and its application by the Commission in the Re capitalisation Communication, specifically with its Annex, where the Commission explains how it determines the price of equity or own funds (ordinary or common shares) - balancing the “real value” with the “market value” within a crisis context. This paper will also consider how to transform the Crisis into an opportunity in order to minimise tax burdens to taxpayers – as well as making financial markets more efficient. Furthermore, whether the Commission and Member States have applied the methodology (the determination of the price of equity – as stated in the Annex to the Recapitalisation Communication on Financial Institutions) in determining the price of equity with respect to the capital of banks acquired by Member States, will be addressed. Such consideration could provide a vital key to determining the real value of State Aid and the best possible price for which capital could be sold. Given the scale of government intervention and State rescues which occurred during the recent crisis – as well as the prominence accorded to measures aimed at preventing and limiting distortions of competition, calls have been made for competition authorities to take on more formidable roles in designing and implementing exit strategies. In order to foster competition as much as possible, it is proposed that ”governments should provide financial institutions with incentives to prevent them from depending on government support once the economy begins to recover.”
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 25860.
Date of creation: Jul 2010
Date of revision: 12 Oct 2010
Financial Crisis; state aid; recapitalisation; equity; own funds; tier capital; MEIP; guarantees; Troubled Asset Relief Program (TARP); fundamentally sound institutions; rescue and restructuring aid; recovery.;
Find related papers by JEL classification:
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- K2 - Law and Economics - - Regulation and Business Law
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G01 - Financial Economics - - General - - - Financial Crises
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-10-23 (Accounting & Auditing)
- NEP-ALL-2010-10-23 (All new papers)
- NEP-PBE-2010-10-23 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Takeo Hoshi & Anil K Kashyap, 2008.
"Will the U.S. Bank Recapitalization Succeed? Eight Lessons from Japan,"
NBER Working Papers
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- Hoshi, Takeo & Kashyap, Anil K, 2010. "Will the U.S. bank recapitalization succeed? Eight lessons from Japan," Journal of Financial Economics, Elsevier, vol. 97(3), pages 398-417, September.
- Ojo, Marianne, 2010.
"Liquidity assistance and the provision of state aid to financial institutions,"
23523, University Library of Munich, Germany.
- Marianne Ojo, 2010. "Liquidity Assistance and the Provision of State Aid to Financial Institutions," Journal of Advanced Research in Law and Economics, ASERS Publishing, vol. 0(2), pages 137 - 157, December.
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