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European banks and Fed liquidity facilities during the Global Financial Crisis: Good news for the bad and bad news for the good

Author

Listed:
  • Hervé Alexandre

    (DRM, CNRS, [UMR 7088], Université Paris-Dauphine, PSL, Place du Maréchal de Lattre de Tassigny 75775 PARIS Cedex 16;)

  • Catherine Refait-Alexandre

    (Université de Franche-Comté, CRESE, F-25000 Besançon, France)

  • Larry D. Wall

    (Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street N.E, Atlanta, Georgia 30309-4470, USA)

Abstract

The Fed operated various liquidity facilities during 2007-10 that were intended to alleviate financial system stress but could have been interpreted as an adverse signal. We analyze the response of the credit default swap market to the announcement and usage of these facilities by European banks. We find that Fed financial assistance tended to reduce market perception of risk if the information was related to Fed’s liquidity policies and increased risk perceptions when the information was more about banks’ riskiness. We also find the facilities reduced the perceived risk of publicly assisted banks but increased the perceived risk of banks that were not assisted.

Suggested Citation

  • Hervé Alexandre & Catherine Refait-Alexandre & Larry D. Wall, 2024. "European banks and Fed liquidity facilities during the Global Financial Crisis: Good news for the bad and bad news for the good," Working Papers 2024-12, CRESE.
    • Handle: RePEc:crb:wpaper:2024-12
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    File URL: https://crese.univ-fcomte.fr/uploads/wp/WP-2024-12.pdf
    File Function: First version, 2024
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    More about this item

    Keywords

    Financial crisis; Federal Reserve lending facilities; European banks.;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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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