U.S. Banks, Crises, and Bailouts: From Mexico to LTCM

The impact of crises and bailouts on U.S. bank stock prices are examined to assess some of the issues raised by proponents and opponents of bailouts. First, whether currency crises in emerging markets had a significant impact on banks is investigated. Second, the impact of the largest bailouts is examined. It is found that they significantly benefited banks with exposure to the bailed-out country and generally had no significant impact on banks without exposure. Third, the Long Term Capital Management crisis is considered, which is useful to put emerging market crises in perspective since no public funds were used in the bailout. The banks that participated in the LTCM rescue lost dramatically when the LTCM losses became known and when the rescue was announced.