Evidence of Differences in the Effectiveness of Safety-Net Management in European Union Countries

Santiago Carbo-Valverde, Edward Kane and Francisco Rodriguez-Fernandez
Authors registered in the RePEc Author Service: Santiago Carbo Valverde and Francisco Rodríguez Fernández ()

No 13782, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: EU financial safety nets are social contracts that assign uncertain benefits and burdens to taxpayers in different member countries. To help national officials to assess their taxpayers' exposures to loss from partner countries, this paper develops a way to estimate how well markets and regulators in 14 of the EU-15 countries have controlled deposit-institution risk-shifting in recent years. Our method traverses two steps. The first step estimates leverage, return volatility, and safety-net benefits for individual EU financial institutions. For stockholder-owned banks, input data feature 1993-2004 data on stock-market capitalization. Parallel accounting values are used to calculate enterprise value (albeit less precisely) for mutual savings institutions. The second step uses the output from the first step as input into regression models of safety-net benefits and interprets the results. Parameters of the second-step models express differences in the magnitude of safety-net subsidies and in the ability of financial markets and regulators in member countries to restrain the flow of safety-net subsidies to commercial banks and savings institutions. We conclude by showing that banks from high-subsidy and low-restraint countries have initiated and received the lion's share of cross-border M&A activity. The efficiency, stabilization, and distributional effects of allowing banks to and from differently subsidized environments to expand their operations in partner countries pose policy issues that the EU ought to address.

JEL-codes: F02 (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-eec
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Published as Santiago Carbo-Valverde & Edward Kane & Francisco Rodriguez-Fernandez, 2008. "Evidence of Differences in the Effectiveness of Safety-Net Management in European Union Countries," Journal of Financial Services Research, Springer, vol. 34(2), pages 151-176, December.

Downloads: (external link)
http://www.nber.org/papers/w13782.pdf (application/pdf)

Related works:
Journal Article: Evidence of Differences in the Effectiveness of Safety-Net Management in European Union Countries (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:13782

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w13782

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().