Hidden effects of bank recapitalizations

Elena Beccalli, Pascal Frantz and Francesca Lenoci

Journal of Banking & Finance, 2018, vol. 94, issue C, 297-314

Abstract: Given the importance of capital regulation in the banking industry, how and why a bank's behavior reacts to a recapitalization has profound consequences. To this end, we investigate the effects of 306 seasoned equity offerings (SEOs) conducted by listed European banks between 2002 and 2014. We use propensity score matching and find that SEOs lead to asset expansion as opposed to any deleveraging. Further, we find a decrease in lending in the short-term followed by a subsequent increase, a reduction in profitability, and an increase in systemic risk. Regulators might not have fully considered this last negative externality when they imposed the tougher Basel III capital requirements. The effects of SEOs strongly depend on the reasons behind the recapitalizations.

Keywords: Banks; Recapitalizations; SEOs; EU; Systemic risk; SIFI; Deleveraging; Lending; Profitability (search for similar items in EconPapers)
JEL-codes: G21 G34 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:94:y:2018:i:c:p:297-314

DOI: 10.1016/j.jbankfin.2018.07.001

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