Extraordinary amounts of public funds and/or assistance were made available to banks
since the onset of the 2007–8 financial crises. Governments worldwide have launched
a massive bailout package to support banks in distress. Using a probit model, this article
investigates the likelihood of bailouts following the financial crisis. Our results lead
us to conclude that the governance characteristics of banks, specifically the characteristics
of boards, bank risks, as well as bank-level and country-specific banking sector features,
explain the likelihood of bailouts in the European banking sector. In particular,
we find that board banking experience, longer directors’ tenure, less busy boards, and
the existence of a corporate governance committee decrease the likelihood of banks
participating in a bailout programme. Inversely, board independence, credit, and liquidity
risks increase the probability of banks being bailed out. Furthermore, fewer limitations
on banking freedom and greater openness of the banking sector have a harmful
impact on the occurrence of bailouts. Our study therefore suggests relevant policy implications,
which might help supervisors, regulators, and other public authorities in
avoiding costly bailouts.
