Does the Amount and Time of Recapitalization Affect the Profitability of Commercial Banks?

In this paper we study the effects of bank recapitalization on profitability during the recent global financial crisis. We used data from 91 systemically important banks in the EU and the US. We found that a higher amount of recapitalization increases a bank's profitability with a lag of one ye...

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Bibliographic Details
Published in:Finance a úvěr 2017-01, Vol.67 (4), p.318
Main Authors: Tomec, Matej, Jagrič, Timotej
Format: Article
Language:English
Subjects:
Bailouts
Bank earnings
Bank management
Banking industry
Commercial banks
Economic crisis
Economics
Interest rates
International finance
Profits
Recapitalization
Regulation of financial institutions
Retained earnings
Stockholders
Studies
Wall Street Reform & Consumer Protection Act 2010-US
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Summary:In this paper we study the effects of bank recapitalization on profitability during the recent global financial crisis. We used data from 91 systemically important banks in the EU and the US. We found that a higher amount of recapitalization increases a bank's profitability with a lag of one year. Recapitalizations performed in the first two years of the crisis had an immediate negative effect on profitability but it became positive when we tested it at the end of our analysed period, i.e. when most of the banks were out of the crisis. The positive effect on profitability was present only in banks recapitalized in the first two years of the crisis and negative for banks recapitalized later on in the crisis. When we simultaneously tested the effect of time and the amount of recapitalization, we found that in banks recapitalized in the first two years of the crisis, the positive effect on profitability increased with the amount of recapitalization.
ISSN:0015-1920
2464-7683