It should be noted that new issues have emerged in the global financial system as public capital injection prevails. One of them is a gap between the level of capital recorded on the balance sheet and market participants’ perception of franchise value of financial institutions. The level of capital presumably should reflect market expectations about earning growth potential of a firm.
On one hand, recapitalization by the government serves as a buffer for future losses, in the same way with privately raised capital. On the other hand, it comes from different incentives from private capital, in which investors shoulder the risk with an expectation to recoup their investments by the future growth of the firm.