Business Intelligence

Time To Buy Or Just Buying Time? The Market Reaction To Bank Rescue Packages

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Executive Summary

This paper reviews the market reaction to bank rescue packages announced in six countries between October 2008 and January 2009. The paper distinguishes the impact on creditors as seen in the change of CDS spreads from the impact on shareholders as seen in the movement of bank stock prices. Government interventions benefited creditors at the expense of shareholders, with bank CDS spreads narrowing around the announcements in all cases. Despite a brief positive reaction, bank stock prices continued to under perform in all countries except the United States where the favorable terms of the government support allowed bank stocks to outperform.

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