Too Many to Fail? Evidence of Regulatory Forbearance when the Banking Sector is Weak
Review of Financial Studies 24, 1378-1405
48 Pages Posted: 25 Mar 2008 Last revised: 8 Jul 2017
Date Written: February 7, 2009
This paper studies bank failures in 21 emerging market countries in the 1990s. By using a competing risk hazard model for bank survival, we show that a government is less likely to take over or close a failing bank if the banking system is weak. This Too-Many-to-Fail effect is robust to controlling for macroeconomic factors, financial crises, the Too-Big-To-Fail effect, domestic financial development, and concerns due to systemic risk and information spillovers. The paper also shows that the Too-Many-to-Fail effect is stronger for larger banks and when there is a large government budget deficit.
JEL Classification: G21, G28, E58, F30
Suggested Citation: Suggested Citation