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Bank Recapitalization, Regulatory Intervention, and Repayment
Author(s) -
KICK THOMAS,
KOETTER MICHAEL,
POGHOSYAN TIGRAN
Publication year - 2016
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12339
Subject(s) - restructuring , psychological intervention , intervention (counseling) , recapitalization , capital requirement , capital (architecture) , business , actuarial science , economics , financial system , finance , incentive , microeconomics , psychology , archaeology , psychiatry , history
We use prudential supervisory data for all German banks during 1994–2010 to test if regulatory interventions affect the likelihood that bailed‐out banks repay capital support. Accounting for the selection bias inherent in nonrandom bank bailouts by insurance schemes and the endogenous administration of regulatory interventions, we show that regulators can increase the likelihood of repayment substantially. An increase in intervention frequencies by one standard deviation increases the annual probability of capital support repayment by 7%. Sturdy interventions, like restructuring orders, are effective, whereas weak measures reduce repayment probabilities. Intervention effects last up to 5 years.