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

See all articles by Craig Brown

Craig Brown

Purdue University - Department of Finance

Serdar Dinc

Rutgers University

Date Written: February 7, 2009

Abstract

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

Brown, Craig O. and Dinc, Serdar, Too Many to Fail? Evidence of Regulatory Forbearance when the Banking Sector is Weak (February 7, 2009). Review of Financial Studies 24, 1378-1405, Available at SSRN: https://ssrn.com/abstract=1107645

Craig O. Brown (Contact Author)

Purdue University - Department of Finance ( email )

West Lafayette, IN 47907-1310
United States

HOME PAGE: http://craigobrown.me

Serdar Dinc

Rutgers University ( email )

111 Washington Avenue
Newark, NJ 07102
United States

HOME PAGE: http://serdardinc.com

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