CPP funds allocation: restoring financial stability or minimising risks of non-repayment to taxpayers?

Varvara Isyuk

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: The U.S. Federal Reserve responded to liquidity shortage through compulsory loan guarantee scheme and bank recapitalisations mainly under Capital Purchase Program (CPP) for commercial banks. The bailout packages provided under CPP seem to be efficient in responding to the liquidity crisis subject to large banks that contributed the most to systemic risk. However, smaller banks that were actually exposed to the mortgage market and non-performing loans were denied the financial aid or received CPP funds of a relatively smaller size. Such CPP funds allocation was efficient from the point of view of taxpayer as the probability of bailout non-repayments was minimised. However, it did not support real estate loan recapitalisations that could become a reason of large welfare loses for the homeowners

Keywords: Bailouts; bank recapitalisation; CPP funds; systemic risk (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012-09
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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http://mse.univ-paris1.fr/pub/mse/CES2012/12072.pdf (application/pdf)

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Working Paper: CPP funds allocation: restoring financial stability or minimising risks of non-repayment to taxpayers ? (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:12072

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