The impact of policy interventions on systemic risk across banks

What is the impact of policy interventions on the systemic risk of banks? To answer this question, we analyze a comprehensive sample that combines an original set of bank-specific bailout events with balance sheets of key affected and non-affected European banks between 2005 and 2014. We find a positive and significant association of 'guarantees' with systemic risk, which is somewhat weaker for large banks and in the long run. The immediate influence of 'recapitalizations' is also somewhat different for large banks. 'Liquidity injections' are similarly positively linked with systemic risk, but the long run effect is mitigated for better capitalized or less profitable banks and when the regulator imposes restrictions like supervisory board intrusions, management pay limitations, and capital pay bans. Results are robust to accounting for a potential intervention selection bias and for alternative measures of systemic risk