The banking bailout of the subprime crisis: Was the bang worth the buck?
We employ event study methodology to examine government policies aimed at rescuing banks from the effects of the 2008–2009 financial crisis. Announcements directed at the banking system as a whole were associated with positive cumulative abnormal returns, whereas announcements directed at specific banks were associated with negative cumulative abnormal returns. The effects of foreign general announcements spilled over across different areas and were perceived by home-country banks as subsidies to foreign banks. Specific announcements produced effects consistent with other banks being crowded out for government resources. Multiple specific announcements exacerbated banks’ moral hazard. Findings suggest that individual institutions were reluctant to seek public assistance.
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Volume (Year): 23 (2013)
Issue (Month): C ()
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