Fighting Failure: The Persistent Real Effects of Resolving Distressed Banks

60 Pages Posted: 9 Apr 2021 Last revised: 22 Feb 2022

See all articles by Ivan Ivanov

Ivan Ivanov

Board of Governors of the Federal Reserve System

Stephen A. Karolyi

Office of the Comptroller of the Currency

Date Written: February 14, 2022

Abstract

We estimate the real effects of resolving distressed banks using quasi-experimental variation in resolutions introduced by a threshold-based rule of the FDIC Improvement Act. We find that resolutions reduce employment and establishments growth by up to six percentage points. These effects are persistent and driven by small, less urban counties with concentrated banking markets and bank-dependent industries. Resolutions also significantly decrease SME lending, consistent a bank lending channel in which large out-of-market acquirers ration credit to the small business borrowers of target banks. Overall, current bank resolution policy may have costly externalities for local economic activity.

Keywords: bank resolutions, the real economy, the bank lending channel

JEL Classification: G01, G21, G28,

Suggested Citation

Ivanov, Ivan and Karolyi, Stephen A., Fighting Failure: The Persistent Real Effects of Resolving Distressed Banks (February 14, 2022). Available at SSRN: https://ssrn.com/abstract=3822591 or http://dx.doi.org/10.2139/ssrn.3822591

Ivan Ivanov (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Stephen A. Karolyi

Office of the Comptroller of the Currency ( email )

400 7th Street SW
Washington, DC 20219
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
216
Abstract Views
931
rank
195,164
PlumX Metrics