Financial Sector Troubles and Energy Markets

Abstract

Literature shows the dynamics of energy markets impacting a variety of sectors. In response to the 2007/2008 financial crisis, the U.S. Treasury providefinancial assistance (bailouts) to hundreds of public and private financial institutions under the Troubled Asset Recovery Program (TARP) and thTargeted Investment Program. Several studies suggest that bailouts alter the risk profile of the receiving companies. Since risk profiles are at the corof volatility transmissions between asset groups, in this study, we evaluate the volatility impacts of energy markets on these financial institutions beforand after they received financial assistance. The data used corresponds to daily observation from January 2022 to December 2020. After controllinfor systematic components, our findings show no volatility transmission before the financial intervention but suggest robust volatility transmissiofrom oil and natural gas markets to the bailout banks post bailouts.