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Determinants of European banks’ bailouts following the 2007–2008 financial crisis

Determinants of European banks’ bailouts following the 2007–2008 financial crisis

Fernandes, Catarina, Farinha, Jorge, Martins Vitorino, Francisco and Mateus, Cesario (2016) Determinants of European banks’ bailouts following the 2007–2008 financial crisis. Journal of International Economic Law, 19 (3). pp. 707-747. ISSN 1369-3034 (Print), 1464-3758 (Online) (doi:10.1093/jiel/jgw060)

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Abstract

Extraordinary amounts of public funds and/or assistance were made available to banks since the onset of the 2007–8 financial crises. Governments worldwide have launched a massive bailout package to support banks in distress. Using a probit model, this article investigates the likelihood of bailouts following the financial crisis. Our results lead us to conclude that the governance characteristics of banks, specifically the characteristics of boards, bank risks, as well as bank-level and country-specific banking sector features, explain the likelihood of bailouts in the European banking sector. In particular, we find that board banking experience, longer directors’ tenure, less busy boards, and the existence of a corporate governance committee decrease the likelihood of banks participating in a bailout programme. Inversely, board independence, credit, and liquidity risks increase the probability of banks being bailed out. Furthermore, fewer limitations on banking freedom and greater openness of the banking sector have a harmful impact on the occurrence of bailouts. Our study therefore suggests relevant policy implications, which might help supervisors, regulators, and other public authorities in avoiding costly bailouts.

Item Type: Article
Uncontrolled Keywords: Banks’ bailouts; Financial crisis; Corporate governance; Board structure
Subjects: H Social Sciences > HJ Public Finance
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of Accounting & Finance
Last Modified: 23 Sep 2018 00:38
Selected for GREAT 2016: None
Selected for GREAT 2017: GREAT a
Selected for GREAT 2018: None
URI: http://gala.gre.ac.uk/id/eprint/16096

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