Catch, Restrict, and Release: The Real Story of Bank Bailouts

Sergey Tsyplakov, Allen N. Berger, Steven Ongena and Simona Nistor (simona.mutu@econ.ubbcluj.ro)
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Sergey Tsyplakov: University of South Carolina - Darla Moore School of Business
Allen N. Berger: University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

No 20-45, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Bank bailouts are not the "one-shot" events commonly described in the literature. These bailouts are instead dynamic processes in which regulators "catch" financially distressed banks; "restrict" their activities over time; and "release" the banks from restrictions at sufficiently healthy capital ratios. The "catch-restrict-release" approach is a global phenomenon, which we document using hand-collected data on capital injection and debt guarantee bailouts in the European Union (EU) over 2008-2014. We present a dynamic theoretical model of socially-optimizing regulators engaging in "catch-restrict-release" capital injection and debt guarantee bailouts, and empirically test model predictions. Observed EU bailouts are qualitatively consistent with optimizing behavior.

Keywords: bailout; debt guarantees; capital injections; bailout restrictions; regulatory restriction phase; restriction duration (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2020-05
New Economics Papers: this item is included in nep-ban and nep-cba
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2045

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