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The Impact of State Loans Policy on Bank Stability

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  • Emilia-Anuta Corovei

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Abstract

The banking crisis has demonstrated the weakness of regulatory and countries’ institutional authorities in responding and resolving banking sector problems. Many decisions regarding intervention in the banking sector were made too late,and many such decisions were rushed, without proper evaluation of the effectiveness of the chosen mechanisms and their potential consequences for the banking sector (Hoshi, T. and Kashyap, A.K. 2010). Recent findings show that government rescue measures results in only a small proportion of bank recoveries. Our paper examines the effectiveness of the state loan policy adopted during the global financial crisis on bank stability. We combine unique bank-level data of 85 European banking institutions and cross-country data in order to estimate the impact of this state measure on the banking sector stability. Our empirical results are correlated with an existing theoretical model from the literature (Dietrich, D., Hauck, A,. (2012),) and reflect a significant negative influence of state loan policy measure on bank stability.

Suggested Citation

  • Emilia-Anuta Corovei, 2015. "The Impact of State Loans Policy on Bank Stability," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 7(3), pages 187-193, September.
  • Handle: RePEc:khe:journl:v:7:y:2015:i:3:p:187-193
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    More about this item

    Keywords

    Policy rescue measures; state loan; banking sector stability; banking crisis;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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

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