Q2. What are the future works mentioned in the paper "Time to buy or just buying time? the market reaction to bank rescue packages, september 2009" ?
Given the weakness in bank stocks through January 30 2009 and the limited access to bond markets without a government guarantee, it is not obvious that banks were in a position to extend more loans. Future research may usefully monitor the deleveraging and repair of bank balance sheets, and assess the extent to which government support has restored the flow of credit to the real economy.
Q3. What percentage of banks in the sample were not members of the FTSE 100?
While Dutch and Swiss banks as a group represent close to 20% of their respective indices, a number of banks in their sample were not members of these indices.
Q4. What is the market reaction to the issuance of hybrid capital?
The market response to the issuance of hybrid capital depends on the specific features of the security, such as the conversion ratio, the conversion price, the maturity date, and the call period.
Q5. What is the impact of a stronger capital base on the shareholders?
The benefit of a stronger capital base and the lower probability of financial distress must be weighed against the potential dilution of existing shareholders and any restrictions on the payment of dividends.
Q6. How many banks are available for study?
Given rapid consolidation in the banking industry over the previous years and the disappearance of several large players, the sample of banks available for study is small, with the United Kingdom, France, Germany and the Netherlands featuring fewer than six banks each.
Q7. What did the UK government do to prevent the payment of common dividends?
While US and German capital injections mentioned limits on the payment of common dividends, only the United Kingdom explicitly prohibited common dividends whilst the government’s preferred shares remain outstanding.
Q8. What are the conditions that invalidate traditional test statistics?
These conditions – clustering, overlapping events, increased variance around the event – invalidate traditional test statistics that require ARs to be independent and identically distributed drawings from a distribution with a constant variance.
Q9. What did the US Treasury do to reduce the capital required to recapitalise the banks?
This action reduced the regulatory capital a bank must hold by limiting the potential losses from these portfolios thereby reducing the bank’s risk-weighted assets and its required capital.
Q10. What is the disadvantage of a longer window?
The disadvantage of a longer window is that it becomes problematic to disentangle how much of the market reaction post-October is due to the deterioration of the real economy, which accelerated rapidly over the fourth quarter of 2008.
Q11. What was the main reason why banks did not view the rescue packages as a buying opportunity?
But the continued weakness in bank stocks and the need for subsequent government interventions suggested that bank shareholders did not view rescue packages as a buying opportunity.
Q12. What is the average reaction to the issuance of convertible preferred shares and convertible debt?
On average, researchers find that the stock price reaction to the issuance of convertible preferred shares and convertible debt is negative, with 2-day ARs of -1.0% to -1.5% (Lewis et al. 2003).
Q13. How many banks were subject to the stress tests?
Note that the US sample includes 16 of the 19 bank holding companies subject to the US Treasury’s stress tests released in May 2009.13