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Too big to fail: Some empirical evidence on the causes and consequences of public banking interventions in the UK

  • Rose, Andrew K.
  • Wieladek, Tomasz

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 nationalizations. 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 nationalization.

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File URL: http://www.sciencedirect.com/science/article/pii/S0261560612001027
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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 31 (2012)
Issue (Month): 8 ()
Pages: 2038-2051

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Handle: RePEc:eee:jimfin:v:31:y:2012:i:8:p:2038-2051
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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  1. Rose, Andrew K & Wieladek, Tomasz, 2011. "Financial Protectionism: the First Tests," CEPR Discussion Papers 8404, C.E.P.R. Discussion Papers.
  2. Honohan, Patrick & Klingebiel, Daniela, 2003. "The fiscal cost implications of an accommodating approach to banking crises," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1539-1560, August.
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  11. International Monetary Fund, 2009. "How to Stop a Herd of Running Bears? Market Response to Policy Initiatives during the Global Financial Crisis," IMF Working Papers 09/204, International Monetary Fund.
  12. Tao Wu, 2011. "The U.S. Money Market and the Term Auction Facility in the Financial Crisis of 2007-–2009," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 617-631, May.
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