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The effectiveness of TARP-CPP on the US banking industry: A new copula-based approach

The effectiveness of TARP-CPP on the US banking industry: A new copula-based approach
The effectiveness of TARP-CPP on the US banking industry: A new copula-based approach
Following the 2008 financial crisis, regulatory authorities and governments provided distressed banks with equity infusions in order to strengthen national banking systems. However, the effectiveness of these interventions for financial stability has not been extensively researched in the literature. In order to understand the effectiveness of these bailouts for the solvency of banks this paper proposes a new model: the Longitudinal Binary Generalised Extreme Value (LOBGEV) model. Differing from the existing models, the LOBGEV model allows us to analyse the temporal structure of the probability of failure for banks, for both those that received a bailout and for those that did not. In particular, it encompasses both the flexibility of the D-vine copula and the accuracy of the generalised extreme value model in estimating the probability of bank failure and of banks receiving approval for capital injection. We apply this new model to the US banking system from 2008 to 2013 in order to investigate how and to what extent the Troubled Asset Relief Program (TARP)-Capital Purchase Program (CPP) reduced the probability of the failure of commercial banks. We specifically identify a set of macroeconomic and bank-specific factors that affect the probability of bank failure for TARP-CCP recipients and for those that did not receive capital under TARP-CCP. Our results suggest that TARP-CPP provided only short-term relief for US commercial banks.
0377-2217
1029-1037
Calabrese, Raffaella
903dd66c-f679-4d7d-bd41-38a5cfbfb420
Degl'innocenti, Marta
e33b2a74-a534-44a2-ab66-819b156564c3
Osmetti, Silvia Angela
0ac902cd-5589-4769-b78b-078bc6c13ae4
Calabrese, Raffaella
903dd66c-f679-4d7d-bd41-38a5cfbfb420
Degl'innocenti, Marta
e33b2a74-a534-44a2-ab66-819b156564c3
Osmetti, Silvia Angela
0ac902cd-5589-4769-b78b-078bc6c13ae4

Calabrese, Raffaella, Degl'innocenti, Marta and Osmetti, Silvia Angela (2017) The effectiveness of TARP-CPP on the US banking industry: A new copula-based approach. European Journal of Operational Research, 256 (3), 1029-1037. (doi:10.1016/j.ejor.2016.07.046).

Record type: Article

Abstract

Following the 2008 financial crisis, regulatory authorities and governments provided distressed banks with equity infusions in order to strengthen national banking systems. However, the effectiveness of these interventions for financial stability has not been extensively researched in the literature. In order to understand the effectiveness of these bailouts for the solvency of banks this paper proposes a new model: the Longitudinal Binary Generalised Extreme Value (LOBGEV) model. Differing from the existing models, the LOBGEV model allows us to analyse the temporal structure of the probability of failure for banks, for both those that received a bailout and for those that did not. In particular, it encompasses both the flexibility of the D-vine copula and the accuracy of the generalised extreme value model in estimating the probability of bank failure and of banks receiving approval for capital injection. We apply this new model to the US banking system from 2008 to 2013 in order to investigate how and to what extent the Troubled Asset Relief Program (TARP)-Capital Purchase Program (CPP) reduced the probability of the failure of commercial banks. We specifically identify a set of macroeconomic and bank-specific factors that affect the probability of bank failure for TARP-CCP recipients and for those that did not receive capital under TARP-CCP. Our results suggest that TARP-CPP provided only short-term relief for US commercial banks.

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Accepted/In Press date: 21 July 2016
e-pub ahead of print date: 26 July 2016
Published date: 1 February 2017
Organisations: Southampton Business School

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Local EPrints ID: 401964
URI: http://eprints.soton.ac.uk/id/eprint/401964
ISSN: 0377-2217
PURE UUID: 379d6e50-4fc9-4df2-a4ea-6d885e4ff587

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Date deposited: 26 Oct 2016 09:26
Last modified: 17 Dec 2019 06:34

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Author: Raffaella Calabrese
Author: Silvia Angela Osmetti

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