The factors affecting the government’s decision to bailout financial institutions :the case of fourteen EU countries during the 2008 crisis -

Abstract

Following the US subprime crisis, governments all around the world have variously decided to bailout their institutions in order to stimulate their economies. The amount of bailout varies widely between nations as is the case for the percentage of bailout out of GDP. Consequently, countries can be classified according to this percentage into levels that reflect the extent to which they were affected by the crisis. This variance indicates that the decision to bailout could be influenced by many factors including institutional and macroeconomic ones. This research project is inspired by the literature review of the key institutional and macroeconomic factors affecting the performance of banks during financial crises. It also relies on a dataset compiled by Grail Research in 2009 showing the percentage of bailout out of GDP for each nation. This dataset was used to build a sample of fourteen European countries affected by the crisis to different extents. An ordered logistic model is built using six institutional governance indicators published by the World Bank database and other six macroeconomic variables. The statistical findings aim to explain which factors tend to have statistical significance in the model.