Limited attention has been paid to the comparative fate of banks benefiting from TARP
Capital Purchase Program (CPP) funding and less fortunate banks subject to FDIC
resolution. We address this omission by investigating two core issues.
One is whether
commercial banks that ended up being subject to FDIC resolution received CPP funds.
The other is whether the non-allocation of CPP funds forced viable commercial banks
into FDIC receivership. Our findings show almost no overlap between CPP-funded and
FDIC-resolved commercial banks, but we provide evidence that a significant number of
FDIC-resolved banks could have avoided receivership if they had been allocated CPP
funding. By comparing estimated funding and resolution costs we also show that bailing out more banks would have been cost-efficient. While our results do not allow for any policy suggestion on the optimality of bail-outs per se, they suggest that once a bail-out program is already on the table, it is better to err on the side of rescuing too many rather than too few banks.
Shocks that hit part of the financial system, such as the subprime mortgage market in 2007, can propagate through a complex network of interconnections among financial and non-financial institutions. As the financial crisis of 2007-2009 has...Read more
This paper investigates what we can learn from the financial crisis about the link between accounting and financial stability. The picture that emerges ten years after the crisis is substantially different from the picture that dominated the...Read more
An important question in banking is how strict supervision affects bank lending and in turn local business activity. Forcing banks to recognize losses could choke off lending and amplify local economic woes. But stricter supervision could also...Read more
This Article analyzes the functioning of the European regulatory approach to the crisis of credit institutions, in the framework of EU banking supervision and in light of its early applications, with a special focus on bail-in. We investigate how...Read more