Too Many to Fail? Evidence of Regulatory Forbearance When the Banking Sector Is Weak

Craig Brown; I. Serdar Dinç

doi:10.1093/rfs/hhp039

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Too Many to Fail? Evidence of Regulatory Forbearance When the Banking Sector Is Weak

Craig Brown¹; I. Serdar Dinç^2,3

¹ City University of New York · ² Baruch College · ³ Massachusetts Institute of Technology

Review of Financial Studies 2011

This article studies bank failures in twenty-one 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 article also shows that the Too-Many-to-Fail effect is stronger for larger banks and when there is a large government budget deficit.

DOI: 10.1093/rfs/hhp039
Volume: 24 (4)
Pages: 1378-1405
Language: en
Export: BibTeX
Sources: openalex crossref