Public recapitalisations and bank risk: evidence from loan spreads and leverage

Michael Brei and Blaise Gadanecz

No 383, BIS Working Papers from Bank for International Settlements

Abstract: A number of countries' authorities put in place bank rescue packages using public funds in response to the global financial crisis. Were these public recapitalisations followed by a reduction of risk in banks' loan books? To answer this question, in this paper the balance sheets and syndicated loan portfolios of 87 large internationally active banks, approximately half of which were rescued during the crisis, are analysed for the period 2000-10. Evidence is presented that banks that were later rescued took on higher risk in their loan books before the crisis than banks that were not, especially in their home markets. Although the riskiness of loan signings started diminishing across the board in 2009, we do not find consistent evidence that rescued banks reduced their risk relatively more than non rescued banks during the crisis.

Keywords: external support; portfolio choices; home bias; risk; banks; syndicated loans (search for similar items in EconPapers)
Pages: 39 pages
Date: 2012-07
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:383

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