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Juridical and financial considerations on the public re capitalisation and rescue of financial institutions during periods of financial crises (Part I)

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  • Ojo, Marianne
  • Rodríguez-Miguez, Jose

Abstract

As well as a consideration of why the lender of last resort facility should be used for emergency situations and systemically relevant institutions in particular, an interesting point which will be considered in this paper is the comparison between the European Central Bank (ECB) Recommendation and its application by the Commission in the Re capitalisation Communication, specifically with its Annex, where the Commission explains how it determines the price of equity (ordinary or common shares) - balancing the “real value” with the “market value” within a crisis context. Whether the Commission and Member States have applied this methodology in determining the price of equity with respect to the capital of banks acquired by Member States, will also be addressed. Such consideration could provide a vital key to determining the real value of State Aid and the best possible price for which capital could be sold. Given the scale of government intervention and State rescues which occurred during the recent crisis – as well as the prominence accorded to measures aimed at preventing and limiting distortions of competition, calls have been made for competition authorities to take on more formidable roles in designing and implementing exit strategies. In order to foster competition as much as possible, it is proposed that ”governments should provide financial institutions with incentives to prevent them from depending on government support once the economy begins to recover.”

Suggested Citation

  • Ojo, Marianne & Rodríguez-Miguez, Jose, 2010. "Juridical and financial considerations on the public re capitalisation and rescue of financial institutions during periods of financial crises (Part I)," MPRA Paper 24047, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:24047
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    File URL: https://mpra.ub.uni-muenchen.de/24047/1/MPRA_paper_24047.pdf
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    References listed on IDEAS

    as
    1. Hoshi, Takeo & Kashyap, Anil K, 2010. "Will the U.S. bank recapitalization succeed? Eight lessons from Japan," Journal of Financial Economics, Elsevier, vol. 97(3), pages 398-417, September.
    2. Ojo, Marianne, 2010. "Liquidity assistance and the provision of state aid to financial institutions," MPRA Paper 23523, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Financial Crisis; re capitalisation; guarantees; Troubled Asset Relief Program (TARP); fundamentally sound institutions; rescues.;

    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • G2 - Financial Economics - - Financial Institutions and Services
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G01 - Financial Economics - - General - - - Financial Crises

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