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Why Are We Still Listening to this Dead British Guy: An Analysis of Emergency Liquidity Assistance in Germany During the Sovereign Debt Crisis

Germany’s position of power within the European Union disguises how impacted the German economy was by the 2008 Financial Crisis and Europe’s subsequent Sovereign Debt Crisis. Two of Germany’s major banks-Commerzbank and Bayerische Landesbank- suffered major losses and required emergency liquidity assistance (ELA) to survive. Walter Bagehot wrote the theory underpinning lenders of last resort (LLRs) in 1873 but how has the development of systemically important banks affected the usefulness of Bagehot’s theory? This paper aims to explain why Germany is in need of updated LLR recommendations through an analysis of the ELA Germany at large, Commerzbank and Bayerische Landesbank received. It also aims to empirically prove the stigma and public distrust of ELA through a regression of Commerzbank’s daily stock returns using an augmented Fama/French model. I find that Bagehot’s theory and recommendations are out of date for our current global financial sector. I cannot empirically prove any stigma or public distrust of Commerzbank, there is no relationship between Commerzbank stock returns and the augmented Fama/French factors.

Identiferoai:union.ndltd.org:CLAREMONT/oai:scholarship.claremont.edu:scripps_theses-1868
Date01 January 2016
CreatorsGillenwater, Nia R
PublisherScholarship @ Claremont
Source SetsClaremont Colleges
Detected LanguageEnglish
Typetext
Formatapplication/pdf
SourceScripps Senior Theses
Rights© 2016 Nia R. Gillenwater, default

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