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State Aid and Bank Intervention: The ING Illiquid Assets Back-up Facility (IABF)

Author

Listed:
  • Sweder van Wijnbergen

    (University of Amsterdam)

  • Leontine Treur

Abstract

The ING Illiquid Assets Back-up Facility announced January 2009 was a SWAP-based insurance to reduce ING’s exposure to Alt-A related risk. Did the deal involve state aid? Usingmarketprices to evaluate the SWAP directly is impossible because markets for Alt-A based CDOs had collapsed. We therefore assess the deal’s impact on the market’s valuation of ING to answer the question. We need to correct for two concurrent events: the announcement of the fourth quarter results and the CEO. We find state aid to be between 1.1 and 2.2 b€. Thus the European Commission's estimate that the IABF entails b€ 5 state aid is at variance with the assessment derived from market based valuations. Moreover, the intervention only had asignificant impact on equity values and apparently not on debt values, indicating that ING was sufficiently capitalized.

Suggested Citation

  • Sweder van Wijnbergen & Leontine Treur, 2011. "State Aid and Bank Intervention: The ING Illiquid Assets Back-up Facility (IABF)," Tinbergen Institute Discussion Papers 11-146/2/DSF26, Tinbergen Institute, revised 27 Oct 2011.
    • Handle: RePEc:tin:wpaper:20110146
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    File URL: https://papers.tinbergen.nl/11146.pdf
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    References listed on IDEAS

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    Cited by:

    1. Stéphanie Stolz & Michael Wedow, 2013. "Keeping banks afloat: public lifelines during the financial crisis," International Economics and Economic Policy, Springer, vol. 10(1), pages 81-126, March.
    2. Homar, Timotej, 2016. "Bank recapitalizations and lending: A little is not enough," ESRB Working Paper Series 16, European Systemic Risk Board.

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    More about this item

    Keywords

    bank intervention; asset swap; guarantees;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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