Did post-crisis government bailouts reduce tail systemic risk in European banks?

We investigate whether government bailouts, post the global financial crisis (2007–2008), were helpful in reducing systemic risk in European banks. We focus on the distinguishing features of European banks as they differ from their US counterparts in terms of concentration, liquidity and capital ratios. We apply multivariate extreme value theory (EVT) in measuring systemic risk that has never been used in the bailout literature. We invoke difference-in-difference methodology to examine the impact of bailout programmes on systemic risk in bailout banks versus non-bailout banks. We find that the bailout packages attenuated the transmission of systemic risk to European banks for both large and small banks and for high liquid and low liquid banks. However, pronounced reduction in systemic risk is only associated with highly capitalised banks. Our findings are robust to endogeneity issue and selection bias and offer policy implications regarding the usefulness of bailout programmes for financial stability.