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Federal Reserve financial crisis lending programs and bank stock returns

Author

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  • Cyree, Ken B.
  • Griffiths, Mark D.
  • Winters, Drew B.

Abstract

We use an E-GARCH model to estimate the wealth effects of Federal Reserve lending during the financial crisis to Investment banks (I-Banks), “Too Big to Fail” (TBTF) banks, and “traditional” commercial banks. Borrowing from the Term Auction Facility program has negative wealth effects for all banks and I-banks in particular. We also find that the market view of the liquidity programs changed across the sample sub-periods. I-Bank and TBTF bank borrowing from the discount window is initially viewed positively, however continued use of the discount window and the Term Auction Facility was generally (though not universally) viewed negatively. Commercial Paper Funding Facility program participation is consistently positive only for traditional banks and programs that focus on the purchase of specific securities (e.g., commercial paper) to address specific problems also appear to primarily benefit traditional banks. The inconsistency of results across the time periods of the crisis is telling as market participants struggled to discern what access to these programs meant.

Suggested Citation

  • Cyree, Ken B. & Griffiths, Mark D. & Winters, Drew B., 2013. "Federal Reserve financial crisis lending programs and bank stock returns," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3819-3829.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:10:p:3819-3829
    DOI: 10.1016/j.jbankfin.2013.06.004
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    References listed on IDEAS

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    Cited by:

    1. repec:kap:rqfnac:v:49:y:2017:i:2:d:10.1007_s11156-016-0600-2 is not listed on IDEAS
    2. Kick, Thomas & Koetter, Michael & Storz, Manuela, 2016. "Cross-border transmission of emergency liquidity," Discussion Papers 34/2016, Deutsche Bundesbank.
    3. Benjamin M. Blau & Scott E. Hein & Ryan J. Whitby, 2016. "The Financial Impact Of Lender-Of-Last-Resort Borrowing From The Federal Reserve During The Financial Crisis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 39(2), pages 179-206, June.
    4. repec:uts:finphd:5-2018 is not listed on IDEAS
    5. Bessler, Wolfgang & Kurmann, Philipp & Nohel, Tom, 2015. "Time-varying systematic and idiosyncratic risk exposures of US bank holding companies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 35(C), pages 45-68.

    More about this item

    Keywords

    Financial crisis; Federal Reserve liquidity programs; Too Big to Fail;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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