Safety-Net Benefits Conferred on Difficult-to-Fail-And-Unwind Banks in the Us and EU Before and During the Great Recession

35 Pages Posted: 14 Feb 2011 Last revised: 12 Jul 2011

See all articles by Santiago Carbo-Valverde

Santiago Carbo-Valverde

Bangor Business School; Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF)

Edward J. Kane

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History

Multiple version iconThere are 3 versions of this paper

Date Written: February 2011

Abstract

This paper models and estimates ex ante safety-net benefits at a sample of large banks in US and Europe during 2003-2008. Our results suggest that difficult-to-fail and unwind (DFU) banks enjoyed substantially higher ex ante benefits than other institutions. Safety-net benefits prove significantly larger for DFU firms in Europe and bailout decisions less driven by asset size than in the US. We also find that a proxy for regulatory capture helps to explain bailout decisions in Europe. A policy implication of our findings is that authorities could better contain safety-net benefits if they refocused their information systems on measuring volatility as well as capital.

Suggested Citation

Carbo-Valverde, Santiago and Kane, Edward J. and Rodriguez-Fernandez, Francisco, Safety-Net Benefits Conferred on Difficult-to-Fail-And-Unwind Banks in the Us and EU Before and During the Great Recession (February 2011). NBER Working Paper No. w16787. Available at SSRN: https://ssrn.com/abstract=1759859

Santiago Carbo-Valverde (Contact Author)

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF) ( email )

Serrano Anguita 9
Madrid, Madrid 28004
Spain

Edward J. Kane

Boston College - Department of Finance ( email )

Fulton Hall
Chestnut Hill, MA 02467
United States
520-299-5066 (Phone)
617-552-0431 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History ( email )

Granada
Spain

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