How credible is a too-big-to-fail policy?International evidence from market discipline
ISSN: 1988-8767
Year of publication: 2013
Issue: 732
Type: Working paper
More publications in: Notas técnicas: [continuación de Documentos de Trabajo FUNCAS]
Abstract
This paper analyzes in an international sample of banks from 104 countries if the sensitivity of the cost of deposits to bank risk varies across banks depending on their systemic and absolute size. We analyze a period before the 2007 financial crisis and control for endogeneity of bank size, intervention policies in past banking crises, and soundness of countries� public finances. Our results are consistent with the predominance of the too-big-to-fail hypothesis, although this effect is stronger in countries that have not suffered a banking crisis, not imposed losses on depositors in crises, and countries with sounder public finances.