Determinants of European Banks’ Bailouts Following the 2007–2008 Financial Crisis

Abstract

Extraordinary amounts of public funds and/or assistance were made available to banks since the onset of the 2007-2008 financial crisis. Governments worldwide have launched a massive bailout package to support banks in distress. Using a probit model, this paper investigates the likelihood of bailouts following the financial crisis. Our results lead us to conclude that the governance characteristics of banks, specifically the characteristics of boards, bank risks, as well as bank-level and country-specific banking sector features, explain the likelihood of bailouts in the European banking sector. In particular we find that board banking experience, longer directors' tenure, less busy boards and the existence of a corporate governance committee decrease the likelihood of banks participating in a bailout programme. Inversely, board independence, credit and liquidity risks increase the probability of banks being bailed out. Furthermore, fewer limitations on banking freedom and greater openness of the banking sector have a harmful impact on the occurrence of bailouts. Our study therefore suggests relevant policy implications, which might help supervisors, regulators and other public authorities in avoiding costly bailouts.

Nudging toward diversity in the boardroom: A systematic literature review of board diversity of financial institutions

“…This theory is typically linked to the conflict of interest result from the ownership separation (Fama & Jensen, 1983; Jensen & Meckling, 1976). The board diversity literature used it to explore topics such as board diversity influence on the agency conflict and performance of financial firms (Bektas & Kaymak, 2009; Boadi & Osarfo, 2019; Farag & Mallin, 2017; Ghosh, 2017; Kaymak & Bektas, 2008; Kusi, Gyeke‐Dako, Agbloyor, & Darku, 2018; Shettima & Dzolkarnaini, 2018; Talavera, Yin, & Zhang, 2018), CSR reporting quality of financial sector (Tapver, Laidroo, & Gurvitš‐Suits, 2020), CSR practices (Isabel María García‐Sánchez, Martínez‐Ferrero, & García‐Meca, 2018), environmental, social, and governance performance (Birindelli, Dell'Atti, Iannuzzi, & Savioli, 2018), mergers and acquisition performance (Chu, Teng, & Lee, 2016; Hagendorff et al, 2007; Hagendorff & Keasey, 2012), risk taking (Abou‐El‐Sood, 2019; De Vita & Luo, 2018; Yu et al, 2017), compensation policy (García‐Meca, 2016), audit fees (Nehme & Jizi, 2018), earnings management (Fan, Jiang, Zhang, & Zhou, 2019), determinants of banks' bailouts (Fernandes, Farinha, Martins, & Mateus, 2016), and banks' efficiency (Ramly, Chan, Mustapha, & Sapiei, 2017). It is noteworthy that the agency argument helps us to understand the supervisory role of the board members to monitor and control management activities, whereas multiple theoretical perspectives enable us to better interpret the other roles of the board of directors.…”

“…Table 3 shows that 32 papers use multicountry data (e.g., Adusei & Obeng, 2019; Gallego‐Álvarez & Pucheta‐Martínez, 2020; Gangi, Meles, D'Angelo, & Daniele, 2019; García‐Meca et al, 2015), with 10 of these researches focusing only on European context (Boitan & Niţescu, 2019; Farag & Mallin, 2017; Fernandes et al, 2016; Sghaier & Hamza, 2018). Also, the US market is evaluated by other 10 empirical research articles, the United Kingdom by five articles, Turkey by four articles, and Spain by four articles.…”

“…The empirical studies have applied a wide range of regression methods including ordinary least square (Bektas & Kaymak, 2009; Cardillo, Onali, & Torluccio, 2020), probit (Fernandes et al, 2016; Nguyen et al, 2015), logit (Talavera et al, 2018; Tapver et al, 2020), 2SLS (García‐Meca, Uribe‐Bohórquez, & Cuadrado‐Ballesteros, 2018; Owen & Temesvary, 2018), Heckman (Gangi et al, 2019), the difference in difference (Arnaboldi et al, 2020b; Berger et al, 2014), weighted least squares (Fernandes et al, 2017), and generalized method of moments (GMM; Ghosh, 2017; Pathan & Faff, 2013). Interestingly, there is no study applying structural equation model.…”

Do Board Characteristics Impact the Market Performance of Indian Banks?

“…Romano et al (2012) in their study based on a sample of 25 Italian banks over the period 2006 to 2010, find that some board characteristics positively influence bank performance (measured by ROA and ROE) whereas some other board characteristics negatively impact bank performance (through ROA and ROE). Fernandes et al (2016) argues that board characteristics have an impact on bank stability based on a sample of large European banks that received bailout packages. El-Masry et al (2016) in his evaluation of 90 banks operating in GCC countries (i.e.…”

Bank governance and performance: a survey of the literature

“…4,12 Furthermore, the problems with poor governance are more severe for banks than for non-bank firms and their failures have even more substantial costs. 56 Due to the specificities of banks and their impact on the stability of the financial system, 12,57,58 since the onset of the 2007-2008 financial crisis, governments worldwide have launched a massive and unprecedented bailout package to support banks in distress. 59,60 At country-level, regulators are concerned about the impact of governance on the performance of banks because the health of the overall economy depends upon their performance.…”