Decision-Making During the Crisis: Why Did the Treasury Let Commercial Banks Fail?

Croci, Ettore; Hertig, Gerard; Nowak, Éric

doi:10.2139/ssrn.2557717

Cited by 4 publications

(7 citation statements)

References 19 publications

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“…They also point out that large banks are more likely to receive capital under the TARP-CPP. Croci et al (2015) find that commercial and industrial loans, credit risk, non-performing loans, cost inefficiencies, goodwill and size can enhance the probability of receiving capital under the TARP-CPP.…”

Section: An Overview Of Recent Studies On Banks' Bailout and Failurementioning

confidence: 95%

“…A number of these studies have investigated the likelihood of bank JID: EOR [m5G;August 4, 2016;21:19 ] failures in the US during and after the financial crisis (e.g. Cole & White, 2012, Berger & Bouwman, 2013, DeYoung & Torna, 2013, Croci et al, 2015. These authors evaluate a bank's performance using the CAMEL (the acronyms stands for Capital, Asset quality, Management, Earnings, and Liquidity) model that is widely utilised by credit rating agencies and regulators.…”

Section: An Overview Of Recent Studies On Banks' Bailout and Failurementioning

confidence: 99%

“…Berger and Roman (2015) provides evidence of TARP-banks increasing their market share and market power relative to non-TARP banks. More recently, Croci et al (2015) has shown that bailing-out more banks would have been cost-efficient and would have reduced the number of banks that went through the FDIC resolution process. So far, this is the only paper that we aware of that has analysed the probability of default of banks that received a bailout.…”

Section: Article In Pressmentioning

confidence: 99%

“…Bayazitova and Shivdasani, 2012, Cole and White, 2012, Berger and Bouwman, 2013 or probit models ( Croci, Hertig, & Nowak, 2015 ). However, the use of probit and logit link is not appropriate when modelling rare events.…”

Section: Introductionmentioning

confidence: 99%

“…Previous papers mainly focus on the effects of the TARP-CPP on the risk-taking and moral hazard behaviour of banks ( Black & Hazelwood, 2013;Dam & Koetter, 2012;Duchin & Sosyura, 2014 ), the performance of banks ( Croci et al, 2015 ), the distortion of competition in the US banking market ( Berger & Roman, 2015 ), and financial and stock price recovery ( Liu, Kolari, Tippens, & Fraser, 2013 ). So far, Croci et al (2015) is the only study that compares the probabilities of failure for banks that received capital injections under TARP-CPP and for those that did not. We extend this literature by proposing a new model to assess the temporal structure of the effects generated by capital injection.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

The effectiveness of TARP-CPP on the US banking industry: A new copula-based approach

Calabrese

Degl’Innocenti

Osmetti

2017

European Journal of Operational Research

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a b s t r a c tFollowing the 2008 financial crisis, regulatory authorities and governments provided distressed banks with equity infusions in order to strengthen national banking systems. However, the effectiveness of these interventions for financial stability has not been extensively researched in the literature. In order to understand the effectiveness of these bailouts for the solvency of banks this paper proposes a new model: the Longitudinal Binary Generalised Extreme Value (LOBGEV) model. Differing from the existing models, the LOBGEV model allows us to analyse the temporal structure of the probability of failure for banks, for both those that received a bailout and for those that did not. In particular, it encompasses both the flexibility of the D-vine copula and the accuracy of the generalised extreme value model in estimating the probability of bank failure and of banks receiving approval for capital injection. We apply this new model to the US banking system from 2008 to 2013 in order to investigate how and to what extent the Troubled Asset Relief Program (TARP)-Capital Purchase Program (CPP) reduced the probability of the failure of commercial banks. We specifically identify a set of macroeconomic and bank-specific factors that affect the probability of bank failure for TARP-CCP recipients and for those that did not receive capital under TARP-CCP. Our results suggest that TARP-CPP provided only short-term relief for US commercial banks.

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Section: An Overview Of Recent Studies On Banks' Bailout and Failurementioning

confidence: 95%

Section: An Overview Of Recent Studies On Banks' Bailout and Failurementioning

confidence: 99%

Section: Article In Pressmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

The effectiveness of TARP-CPP on the US banking industry: A new copula-based approach

Calabrese

Degl’Innocenti

Osmetti

2017

European Journal of Operational Research

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Shadow resolutions as a no-no in a sound Banking Union

Enriques

Hertig

2015

Financial Regulation

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The Financial Crisis Response. Comparative Analysis Between European Union And USA

Melnic

2017

Review of Economic and Business Studies

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This paper reviews the measures adopted by central banks from the most important economies during the crisis and assess their effectiveness. It is important for policy makers to identify which measures were effective in limiting the financial system distress in order to adopt the appropiate measure during future crisis. In case of US, TARP was the most important program for banking system and it was effective in reducing banks’ contribution to systemic risk and banks’ default probabilities. But TARP also conducted to a reduction in loans growth and create incentives for higher risk-taking behavior. The unconventional monetary policies adopted by ECB during the period 2008- 2016 reduced the impact of the crisis on the European economy and achieved their objectives: to support banks’ funding and to increase lending to real economy (LTROs), to calm tensions from bond markets (CBPP, SMP, OMT), to support economic activity and to stabilize inflation rate (SMP, OMT, LTROs, APP).

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Decision-Making During the Crisis: Why Did the Treasury Let Commercial Banks Fail?

Cited by 4 publications

References 19 publications

The effectiveness of TARP-CPP on the US banking industry: A new copula-based approach

The effectiveness of TARP-CPP on the US banking industry: A new copula-based approach

Shadow resolutions as a no-no in a sound Banking Union

The Financial Crisis Response. Comparative Analysis Between European Union And USA

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