Too many to fail-An analysis of time-inconsistency in bank closure policies

Journal of Financial Intermediation

Volumn 16, Issue 1, 2007, Pages 1-31

  Acharya, Viral V ^a,b   Yorulmazer, Tanju ^c  

^a LONDON BUSINESS SCHOOL   (United Kingdom)

^b CEPR   (United Kingdom)

^c BANK OF ENGLAND   (United Kingdom)

Author keywords

Bailout; Bank regulation; Herding; Systemic risk; Too big to fail

Indexed keywords

EID: 33845312648     PISSN: 10429573     EISSN: 10960473     Source Type: Journal    
DOI: 10.1016/j.jfi.2006.06.001     Document Type: Article

References (60)

1. Acharya, V., Bharath, S., Srinivasan, A., 2004. Does industry-wide distress affect defaulted firms? - Evidence from creditor recoveries. J. Finan. Econ. In press
2. Acharya, V., Yorulmazer, T., 2005a. Limited liability and bank herding. Working Paper. London Business School
3. Acharya, V., Yorulmazer, T., 2005b. Cash-in-the-market pricing and optimal resolution of bank failures. Mimeo. London Business School
4. Adams, P., 1991. Loose Lending, Corruption and the Third World's Environmental Legacy, Chapter 10
5. Allen F., and Gale D. Limited market participation and volatility of asset prices. Amer. Econ. Rev. 84 (1994) 933-955
6. Allen F., and Gale D. Optimal financial crises. J. Finance 53 (1998) 1245-1284
7. Allen F., and Gale D. Financial contagion. J. Polit. Econ. 108 (2000) 1-33
8. Bagehot W. Lombard Street: A Description of the Money Market (1873), H.S. King, London
9. Barron J.M., and Valev N.T. International lending by U.S. banks. J. Money, Credit, Banking 32 3 (2000) 357-381
10. Barth J., Hudson C., and Jahera J. S&L closures and survivors: Are there systemic differences in behavior?. In: Cottrell A., Lawlor M., and Wood J. (Eds). The Causes and Costs of Depository Institution Failures (1995), Kluwer Academic Publishers, Boston
11. Berger P., Ofek E., and Swary I. Investor valuation of the abandonment option. J. Finan. Econ. 42 (1996) 257-287
12. Berglof E., and Bolton P. The great divide and beyond: Financial architecture in transition. J. Econ. Perspect. 16 1 (2002) 77-100
13. Boot A., and Thakor A. Self-interested bank regulation. Amer. Econ. Rev. 83 2 (1993) 206-212
14. Brown C.O., and Dinc I.S. The politics of bank failures: Evidence from emerging markets. Quart. J. Econ. 120 4 (2005) 1413-1444
15. Brown, C.O., Dinc, I.S., 2006. Too many to fail? Evidence of regulatory reluctance in bank failures when the banking sector is weak. Mimeo. University of Michigan
16. Calomiris C.W. Blueprints for a Global Financial Architecture, Reform Proposals (1998), International Monetary Fund
17. Caprio, G., Klingebiel, D., 1996. Bank insolvencies: Cross country experience. Working paper No. 1620. Policy Research, World Bank
18. Caprio, G., Laeven, L., Levine, R., 2005. Governance and bank valuation. Working paper. Department of Economics, Brown University
19. Claessens, S., Djankov, S., Klingebiel, D., 1999. Financial restructuring in East Asia: Halfway there? Financial Sector Discussion Paper No. 3. World Bank
20. Cordella T., and Yeyati E.L. Bank bailouts: Moral hazard vs. value effect. J. Finan. Intermediation 12 4 (2003) 300-330
21. Demirguc-Kunt A., and Detragiache E. Does deposit insurance increase banking system stability? An empirical investigation. J. Monet. Econ. 49 7 (2002) 1373-1406
22. Diamond D., and Rajan R. Liquidity risk, liquidity creation, and financial fragility: A theory of banking. J. Polit. Econ. 109 2 (2001) 287-327
23. Diamond D., and Rajan R. Liquidity shortages and banking crises. J. Finance 60 2 (2005) 615-647
24. Freixas, X., 1999. Optimal bailout policy, conditionality and constructive ambiguity. Discussion paper No. 237. LSE Financial Markets Group
25. Goodhart C. Discussion in the Conference for the Past and Future of Central Bank Cooperation, BIS. Available at. http://www.bis.org/events/conf0506/goodhart.pdf
26. Goodhart, C., Huang, H., 1999. A model of the lender of last resort. Working paper No. 99/39. IMF
27. Goodhart C., and Schoenmaker D. Should the functions of monetary policy and banking supervision be separated?. Oxford Econ. Pap. 47 (1995) 539-560
28. Gorton G. Clearinghouses and the origin of central banking in the United States. J. Econ. History XLV 2 (1985) 277-283
29. Guttentag J., and Herring R. Commercial bank lending to developing countries: From overlending to underlending to structural reform. In: Smith G., and Cuddington J.T. (Eds). International Debt and the Developing Countries (1984), World Bank, Washington, DC 129-150
30. Hart O., and Moore J. A theory of debt based on the inalienability of human capital. Quart. J. Econ. 109 4 (1994) 841-879
31. Hoggarth G., Reis R., and Saporta V. Costs of banking system instability: Some empirical evidence. J. Banking Finance 26 5 (2002) 825-855
32. Hoggarth, G., Reidhill, J., Sinclair, P., 2004. On the resolution of banking crises: Theory and evidence. Working Paper #229. Bank of England
33. Hoggarth G., Patricia J., and Nier E. Banking crises and the design of safety nets. J. Banking Finance 29 (2005) 143-159
34. Holmstrom B., and Tirole J. Private and public supply of liquidity. J. Polit. Econ. 106 1 (1998) 1-40
35. Honohan, P., Klingebiel, D., 2000. Controlling fiscal costs of bank crises. Working paper #2441. World Bank
36. Jain A.K., and Gupta S. Some evidence on "Herding" behavior of U.S. banks. J. Money, Credit, Banking 19 1 (1987) 78-89
37. James C. The losses realized in bank failures. J. Finance 46 4 (1991) 1223-1242
38. Kahn, C., Santos, J.A.C., 2005. Endogenous financial fragility and bank regulation. Working paper. Federal Reserve Bank of New York
39. Kane E.J. The S&L Insurance Mess: How Did It Happen? (1989), Urban Institute, Washington, DC
40. Kasa, K., Spiegel, M., 1999. The role of relative performance in bank closure decisions. Working paper. Federal Reserve Bank of San Francisco
41. Kroszner R.S., and Strahan P.E. Regulatory incentives and the thrift crisis: Dividends, mutual-to-stock conversions and financial distress. J. Finance 51 (1996) 1285-1319
42. La Porta R., de Silanes F.L., and Shleifer A. Corporate ownership around the world. J. Finance 54 (1999) 471-517
43. Luengnaruemitchai P., and Wilcox J.A. Procyclicality, banks' reporting discretion, and "safety in similarity". In: Gup B.E. (Ed). The New Basel Accord (2004), South-Western Publishing 151-175
44. Mailath G., and Mester L. A positive analysis of bank closure. J. Finan. Intermediation 3 (1994) 272-299
45. Mitchell, J., 1997. Strategic creditor passivity, bank rescues, and too many to fail. Working paper #1780. CEPR
46. Myers S., and Majluf N. Corporate financing and investment when firms have information shareholders do not have. J. Finan. Econ. 13 (1984) 187-221
47. O'Hara M., and Shaw W. Deposit insurance and wealth effects: The value of being "Too big to fail". J. Finance 45 6 (1990) 1587-1600
48. Penas M.F., and Unal H. Gains in bank mergers: Evidence from the bond markets. J. Finan. Econ. 74 1 (2005) 149-179
49. Penati A., and Protopapadakis A. The effect of implicit deposit insurance on banks' portfolio choices, with an application to international 'overexposure'. J. Monetary Economics 21 1 (1988) 107-126
50. Perotti E. Inertial credit and opportunistic arrears in transition. European Econ. Rev. 42 (1998) 1703-1725
51. Perotti E., and Suarez J. Last bank standing: What do I gain if You fail?. European Econ. Rev. 46 9 (2002) 1599-1622
52. Pulvino T.C. Do asset fire sales exist: An empirical investigation of commercial aircraft sale transactions. J. Finance 53 (1998) 939-978
53. Rajan R. Why bank credit policies fluctuate: A theory and some evidence. Quart. J. Econ. 109 (1994) 399-442
54. Santomero, A., Hoffman, P., 1999. Problem bank resolution: Evaluating the options. Working paper. Financial Institutions Center, the Wharton School, University of Pennsylvania
55. Sapienza P. The effects of government ownership of bank lending. J. Finan. Econ. 72 2 (2004) 357-384
56. Shleifer A., and Vishny R. Liquidation values and debt capacity: A market equilibrium approach. J. Finance 47 (1992) 1343-1366
57. Stromberg P. Conflicts of interest and market illiquidity in bankruptcy auctions: Theory and tests. J. Finance 55 (2000) 2641-2692
58. Thakor A.V. Do loan commitments cause overlending?. J. Money, Credit, Banking 37 6 (2005) 1067-1099
59. Williamson O.E. Corporate finance and corporate governance. J. Finance 43 (1988) 567-592
60. Winton, A., 2000. Don't put all your eggs in one basket? Diversification and specialization in lending. Working paper. University of Minnesota, Carlson School of Management