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CPP funds allocation : restoring financial stability or minimising risks of non-repayment to taxpayers ?

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  • Varvara Isyuk

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

The U.S. Federal Reserve responded to liquidity shortage through compulsory loan guarantee scheme and bank recapitalisations mainly under Capital Purchase Program (CPP) for commercial banks. The bailout packages provided under CPP seem to be efficient in responding to the liquidity crisis subject to large banks that contributed the most to systemic risk. However, smaller banks that were actually exposed to the mortgage market and non-performing loans were denied the financial aid or received CPP funds of a relatively smaller size. Such CPP funds allocation was efficient from the point of view of taxpayer as the probability of bailout non-repayments was minimised. However, it did not support real estate loan recapitalisations that could become a reason of large welfare loses for the homeowners.

Suggested Citation

  • Varvara Isyuk, 2012. "CPP funds allocation : restoring financial stability or minimising risks of non-repayment to taxpayers ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00755570, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00755570
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00755570
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    Cited by:

    1. Varvara Isyuk, 2013. "Determinants of the Allocation of Funds Under the Capital Purchase Program," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 2(1), pages 79-114, January.

    More about this item

    Keywords

    Bailouts; bank recapitalisation; CPP funds; systemic risk.; systemic risk; Plan de sauvetage; Capital Purchase Program; recapitalisation bancaire; risque systémique.;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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