Too Big to Fail: Some Empirical Evidence on the Causes and Consequences of Public Banking Interventions in the United Kingdom
26 Pages Posted: 30 Aug 2012
Date Written: August 21, 2012
During the 2007-09 financial crisis, the banking sector received an extraordinary level of public support. In this empirical paper, we examine the determinants of a number of public sector interventions: government funding or central bank liquidity insurance schemes, public capital injections, and nationalisations. We use bank-level data spanning all British and foreign banks operating within the United Kingdom. We use multinomial logit regression techniques and find that a bank’s size, relative to the size of the entire banking system, typically has a large positive and non-linear effect on the probability of public sector intervention for a bank. We also use instrumental variable techniques to show that British interventions helped; there is fragile evidence that the wholesale (non-core) funding of an affected institution increased significantly following capital injection or nationalisation.
Keywords: Nationalisation, capital injection, liquidity, crisis, foreign, empirical, data, logit
JEL Classification: G38
Suggested Citation: Suggested Citation