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Government Assistance and Banks' Funding Cost

Author

Listed:
  • Md Jahir Uddin Palas

    (University of Dhaka)

  • Fernando Moreira

    (University of Edinburgh Business School)

Abstract

This study examines the association of government support with recipient banks’ funding cost. The U.S. government’s Capital Purchase Program (CPP) is utilized as a case study of government assistance. The study’s sample includes quarterly data from 2009 to 2018 on 8,327 U.S. financial institutions in the banking sector. The results suggest that government assistance has a significant relationship with the recipient banks’ lower funding cost. Augmented public confidence in recipient banks could be a plausible channel to explain the government assistance–funding cost relationship. The findings are robust to alternative funding cost definitions, samples, estimation methods, and model specifications.

Suggested Citation

  • Md Jahir Uddin Palas & Fernando Moreira, 2023. "Government Assistance and Banks' Funding Cost," International Journal of Central Banking, International Journal of Central Banking, vol. 19(4), pages 143-183, October.
    • Handle: RePEc:ijc:ijcjou:y:2023:q:4:a:4
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    References listed on IDEAS

    as
    1. Moreira, Fernando, 2020. "Financial institutions’ funding cost: Do capital and risk-taking matter?," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 14(1), pages 96-106, December.
    2. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    3. Viral V. Acharya & Nada Mora, 2015. "A Crisis of Banks as Liquidity Providers," Journal of Finance, American Finance Association, vol. 70(1), pages 1-43, February.
    4. Anderson, Haelim Park & Bluedorn, John C., 2017. "Stopping contagion with bailouts: Micro-evidence from Pennsylvania bank networks during the panic of 1884," Journal of Banking & Finance, Elsevier, vol. 76(C), pages 139-149.
    5. Klaus Schaeck, 2008. "Bank Liability Structure, FDIC Loss, and Time to Failure: A Quantile Regression Approach," Journal of Financial Services Research, Springer;Western Finance Association, vol. 33(3), pages 163-179, June.
    6. Berger, Allen N. & Roman, Raluca A. & Sedunov, John, 2020. "Did TARP reduce or increase systemic risk? The effects of government aid on financial system stability," Journal of Financial Intermediation, Elsevier, vol. 43(C).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • 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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