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Survey of Ad Hoc Capital Injections

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Abstract

Government recapitalizations of systemic banking organizations can be costly and unpopular but are sometimes necessary to protect depositors and prevent financial contagion. This paper surveys 23 Yale Program on Financial Stability case studies of ad hoc capital injection programs, defined as programs that provide capital to a single institution or a clearly defined minority of institutions. We saw a marked increase in capital injection programs in the past 50 years, more than half of which were ad hoc. Authorities designing ad hoc capital injections face difficult decisions--when to deploy them rather than let a bank fail; whether to impose losses on shareholders and unsecured creditors; how to protect taxpayers; and how to deal with the management of failed firms. Most advanced countries have updated their tools for managing bank failures since the Global Financial Crisis of 2007-09, generally in compliance with the Financial Stability Board's 2011 Key Attributes of Effective Resolution Regimes for Financial Institutions. Our survey points to the challenges authorities have faced over the years in attempting to adhere to such principles.

Suggested Citation

  • Rhee, June & Hoffner, Benjamin & Feldberg, Greg & Metrick, Andrew, 2024. "Survey of Ad Hoc Capital Injections," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 6(3), pages 1-34, March.
    • Handle: RePEc:ysm:ypfsfc:v:6:y:2024:i:3:p:1-34
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    File URL: https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1569&context=journal-of-financial-crises
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    1. Marina Moretti & Marc C Dobler & Alvaro Piris Chavarri, 2020. "Managing Systemic Banking Crises; New Lessons and Lessons Relearned," IMF Departmental Papers / Policy Papers 2020/003, International Monetary Fund.
    2. Metrick, Andrew, 2022. "Broad-Based Capital Injection Programs," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 4(1), pages 1-48, April.
    3. Rhee, June & Hoffner, Benjamin & Feldberg, Greg & Metrick, Andrew, 2024. "Survey of Ad Hoc Capital Injections," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 6(3), pages 1-34, March.
    4. Chungwon Kang, 2003. "From the Front Lines At Seoul Bank: Restructuring and Reprivatization," IMF Working Papers 2003/235, International Monetary Fund.
    5. repec:imf:imfdep:2020/003 is not listed on IDEAS
    6. Mr. Michael Andrews, 2003. "Issuing Government Bonds to Finance Bank Recapitalization and Restructuring: Design Factors that Affect Banks' Financial Performance," IMF Policy Discussion Papers 2003/004, International Monetary Fund.
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    1. Rhee, June & Hoffner, Benjamin & Feldberg, Greg & Metrick, Andrew, 2024. "Survey of Ad Hoc Capital Injections," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 6(3), pages 1-34, March.

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    More about this item

    Keywords

    ad hoc; bail-in; bank capital; capital injection; recapitalization;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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