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Recapitalization, Credit, and Liquidity

Author

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  • Mike Mariathasan
  • Ouarda Merrouche

    () (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper documents the characteristics of public recapitalizations of banks undertaken since 2008 and examines their relationship with bank lending. The analysis covers the 15 OECD countries whose banking sectors were most severely hit by the crisis and that provided the largest public bailouts relative to their national gross domestic product (GDP). We show that the design of the interventions varied considerably across banks and countries. Larger and higher loss-absorbing capital injections were targeted at weaker banks and at banks of ‘systemically relevant’ size, when the state of public finances allowed. Our results encourage theoretical research with respect to non-linear and potentially adverse effects of bailouts, as well as further investigation into the link between the loss absorbing properties of bank capital and loan growth. With respect to bank lending, we find that only large recapitalizations and infusions of common equity are associated with higher total regulatory capital ratios and sustained loan growth. We find no significant relationship between public capital provisions and interbank lending and challenge the view that local banks increase loan growth relatively more in response to a recapitalization.— Mike Mariathasan and Ouarda Merrouche
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Suggested Citation

  • Mike Mariathasan & Ouarda Merrouche, 2012. "Recapitalization, Credit, and Liquidity," Post-Print hal-01638079, HAL.
  • Handle: RePEc:hal:journl:hal-01638079
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01638079
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    Cited by:

    1. Nikos Vettas & Ioannis Giotopoulos & Evangelia Valavanioti & Svetoslav Danchev, 2016. "The determinants of new firms’ export performance," Economic Bulletin, Bank of Greece, issue 43, pages 7-17, July.
    2. Styliani Belli & Constantina Backinezos, 2016. "The transition to the new methodology for the compilation of balance of payments statistics – BPM6," Economic Bulletin, Bank of Greece, issue 43, pages 19-29, July.
    3. repec:bog:econbl:y:2016:i:43:p:19-29 is not listed on IDEAS
    4. repec:bog:econbl:y:2016:i:43:p:31-53 is not listed on IDEAS
    5. King, Michael R., 2019. "Time to buy or just buying time? Lessons from October 2008 for the cross-border bailout of banks," Journal of Financial Stability, Elsevier, vol. 41(C), pages 55-72.
    6. Sophia Lazaretou, 2016. "The Greek brain drain: the new pattern of Greek emigration during the recent crisis," Economic Bulletin, Bank of Greece, issue 43, pages 31-53, July.
    7. repec:bog:econbl:y:2016:i:43:p:55-75 is not listed on IDEAS
    8. repec:bog:econbl:y:2016:i:43:p:7-17 is not listed on IDEAS
    9. Faidon Kalfaoglou, 2016. "Bank recapitalisation: a necessary but not sufficient condition for resuming lending," Economic Bulletin, Bank of Greece, issue 43, pages 55-75, July.
    10. Beccalli, Elena & Frantz, Pascal, 2016. "Why are some banks recapitalized and others taken over?," LSE Research Online Documents on Economics 67305, London School of Economics and Political Science, LSE Library.
    11. Mark Mink & Sebastiaan Pool, 2018. "Bank Recapitalizations, Credit Supply, and the Transmission of Monetary Policy," DNB Working Papers 616, Netherlands Central Bank, Research Department.
    12. Carbó-Valverde, Santiago & Cuadros-Solas, Pedro J. & Rodríguez-Fernández, Francisco, 2020. "Do bank bailouts have an impact on the underwriting business?," Journal of Financial Stability, Elsevier, vol. 49(C).
    13. Etri Ernovianti & Nor Hayati Binti Ahmad & Ahmad Rizal Mazlan, 2016. "Recapitalization Effectiveness and Performance of Banks in Malaysia," Information Management and Business Review, AMH International, vol. 8(4), pages 6-12.

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