Bank Characteristics and the Debt Guarantee Program

Abstract

We investigate characteristics of bank holding companies (BHCs) that issued debt under the 2008 Debt Guarantee Program (DGP), a novel topic in the literature. We find that BHCs with more equity, that were less efficient, and had a larger funding gap were less likely to issue DGP debt. But BHCs with a higher loan growth and higher volatility of assets were more likely to issue DGP debt. Finally, the economy affected the decision; we document that as the economy improved BHCs were less likely to issue DGP debt and issued a smaller proportion of DGP debt in terms of total assets and total debt. Furthermore, we examine if personal and professional characteristics of Chief Executive Officers (CEOs) influenced the decision. Of the CEO characteristics, we document that BHCs with a CEO with a Master of Business Administration issued lower amounts of DGP debt as a percentage of total assets.