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Too big to fail: some empirical evidence on the causes and consequences of public banking interventions in the United Kingdom

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  • Rose, Andrew

    ()
    (Haas School of Business)

  • Wieladek, Tomasz

    ()
    (Bank of England)

Abstract

During the 2007-09 financial crisis, the banking sector received an extraordinary level of public support. In this empirical paper, we examine the determinants of a number of public sector interventions: government funding or central bank liquidity insurance schemes, public capital injections, and nationalisations. We use bank-level data spanning all British and foreign banks operating within the United Kingdom. We use multinomial logit regression techniques and find that a bank’s size, relative to the size of the entire banking system, typically has a large positive and non-linear effect on the probability of public sector intervention for a bank. We also use instrumental variable techniques to show that British interventions helped; there is fragile evidence that the wholesale (non-core) funding of an affected institution increased significantly following capital injection or nationalisation.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 460.

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Length: 26 pages
Date of creation: 21 Aug 2012
Date of revision:
Handle: RePEc:boe:boeewp:0460

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Keywords: nationalisation; capital injection; liquidity; crisis; foreign; empirical; data; logit;

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  1. Ehrmann, Michael & Gambacorta, Leonardo & Martinéz Pagés, Jorge & Sevestre, Patrick & Worms, Andreas, 2001. "Financial systems and the role of banks in monetary policy transmission in the euro area," Working Paper Series 0105, European Central Bank.
  2. Yacine Aït-Sahalia & Jochen Andritzky & Andreas Jobst & Sylwia Nowak & Natalia Tamirisa, 2010. "Market Response to Policy Initiatives during the Global Financial Crisis," NBER Working Papers 15809, National Bureau of Economic Research, Inc.
  3. Eduardo Levy-Yeyat & Alejandro Micco & Ugo Panizza, 2007. "A reappraisal of State-Owned Banks," Journal of LACEA Economia, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  4. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises: The Good, the Bad, and the Ugly," IMF Working Papers 10/146, International Monetary Fund.
  5. Tigran Poghosyan & Martin Cihák, 2009. "Distress in European Banks: An Analysis Based on a New Dataset," IMF Working Papers 09/9, International Monetary Fund.
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