An Econometric Evaluation of Bank Recapitalization Programs with Bank- and Loan-level Data Report as inadecuate




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Abstract

Public capital injections into the banking system are a comprehensive policy program aimed at reducing the financial risks faced by capital-injected banks, thereby stimulating their lending and profitability. This paper evaluates empirically two large-scale bank capital injections in Japan in 1998 and 1999. We begin by extracting the treatment effects of the public injections using bank-level panel data. Using a difference-in-difference estimator in two-way fixed-effects regression models, we find that the public injections significantly reduced the financial risks faced by the capital-injected banks, but did not stimulate their lending and profitability. Next, we investigate the factors that impeded bank lending following the capital injections using a matched sample of Japanese banks and their borrowers. By employing three-way fixed-effects regression models corresponding to the matched sample, we provide evidence that the deterioration of borrower creditworthiness inhibited not only the capital-injected banks, but also other banks, from lending more.



Item Type: MPRA Paper -

Original Title: An Econometric Evaluation of Bank Recapitalization Programs with Bank- and Loan-level Data-

English Title: An Econometric Evaluation of Bank Recapitalization Programs with Bank- and Loan-level Data-

Language: English-

Keywords: public capital injection, treatment effect, capital crunch, default risk, difference-in-difference estimator, three-way fixed-effects model.-

Subjects: G - Financial Economics > G0 - General > G01 - Financial CrisesG - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; MortgagesG - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation-





Author: Nakashima, Kiyotaka

Source: https://mpra.ub.uni-muenchen.de/70756/







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