Government Assistance and Banks' Funding Cost

This study examines the association of government support with recipient banks’ funding cost. The U.S. government’s Capital Purchase Program (CPP) is utilized as a case study of government assistance. The study’s sample includes quarterly data from 2009 to 2018 on 8,327 U.S. financial institutions in the banking sector. The results suggest that government assistance has a significant relationship with the recipient banks’ lower funding cost. Augmented public confidence in recipient banks could be a plausible channel to explain the government assistance–funding cost relationship. The findings are robust to alternative funding cost definitions, samples, estimation methods, and model specifications