How Much Did Banks Pay to Become Too-Big-To-Fail and to Become Systemically Important?
AbstractThis paper estimates the value of the too-big-to-fail (TBTF) subsidy. Using data from the merger boom of 1991–2004, we find that banking organizations were willing to pay an added premium for mergers that would put them over the asset sizes that are commonly viewed as the thresholds for being TBTF. We estimate at least $15 billion in added premiums for the eight merger deals that brought the organizations to over $100 billion in assets. In addition, we find that both the stock and bond markets reacted positively to these TBTF merger deals. Our estimated TBTF subsidy is large enough to create serious concern, particularly since the recently assisted mergers have effectively allowed for TBTF banking organizations to become even bigger and for nonbanks to become part of TBTF banking organizations, thus extending the TBTF subsidy beyond banking. Copyright Springer Science+Business Media, LLC 2013
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Bibliographic InfoArticle provided by Springer in its journal Journal of Financial Services Research.
Volume (Year): 43 (2013)
Issue (Month): 1 (February)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=102934
Bank merger; Too-big-to-fail; TBTF subsidy; Systemically important bank; G21; G28; G34;
Other versions of this item:
- Elijah Brewer, III & Julapa Jagtiani, 2011. "How much did banks pay to become too-big-to-fail and to become systematically important?," Working Papers 11-37, Federal Reserve Bank of Philadelphia.
- Elijah Brewer, III & Julapa Jagtiani, 2009. "How much did banks pay to become too-big-to-fail and to become systemically important?," Working Papers 09-34, Federal Reserve Bank of Philadelphia.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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by ? in Free exchange on 2012-11-03 14:44:50
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by ? in Economist's View on 2012-11-08 18:41:53
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by Barry Ritholtz in The Big Picture on 2012-11-13 21:00:42
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