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

Author

Listed:
  • 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.

Suggested Citation

  • Rose, Andrew & Wieladek, Tomasz, 2012. "Too big to fail: some empirical evidence on the causes and consequences of public banking interventions in the United Kingdom," Bank of England working papers 460, Bank of England.
  • Handle: RePEc:boe:boeewp:0460
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    References listed on IDEAS

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    1. Aït-Sahalia, Yacine & Andritzky, Jochen & Jobst, Andreas & Nowak, Sylwia & Tamirisa, Natalia, 2012. "Market response to policy initiatives during the global financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 162-177.
    2. 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.
    3. Eduardo Levy-Yeyat & Alejandro Micco & Ugo Panizza, 2007. "A Reappraisal of State-Owned Banks," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Spring 20), pages 209-259, January.
    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 Cihak, 2009. "Distress in European Banks; An Analysis Basedon a New Dataset," IMF Working Papers 09/9, International Monetary Fund.
    6. repec:hrv:faseco:30747188 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Claudia Buch & Catherine Koch & Michael Koetter, 2016. "Crises and rescues: liquidity transmission through international banks," BIS Working Papers 576, Bank for International Settlements.
    2. Alin-Marius ANDRIEȘ & Florentina IEȘAN-MUNTEAN & Simona NISTOR, 2016. "The effectiveness of policy interventions in CEE countries," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 7, pages 93-124, June.
    3. Irina Petkova Kazandjieva-Yordanova, 2017. "Does the Too Big to Fail Doctrine Have a Future?," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 1, pages 51-78, March.
    4. Stefan Avdjiev & Elod Takats, 2016. "Monetary policy spillovers and currency networks in cross-border bank lending," BIS Working Papers 549, Bank for International Settlements.
    5. Gerhardt, Maria & Vennet, Rudi Vander, 2017. "Bank bailouts in Europe and bank performance," Finance Research Letters, Elsevier, vol. 22(C), pages 74-80.
    6. Adrian Van Rixtel & Luna Romo González & Jing Yang, 2015. "The determinants of long-term debt issuance by European banks: evidence of two crises," BIS Working Papers 513, Bank for International Settlements.
    7. Hryckiewicz, Aneta, 2014. "The problem with government interventions: The wrong banks, inadequate strategies, or ineffective measures?," MPRA Paper 64074, University Library of Munich, Germany.
    8. Claudia M Buch & Linda S Goldberg, 2015. "International Banking and Liquidity Risk Transmission: Lessons from Across Countries," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(3), pages 377-410, November.
    9. Hryckiewicz, Aneta, 2014. "What do we know about the impact of government interventions in the banking sector? An assessment of various bailout programs on bank behavior," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 246-265.
    10. De Caux, Robert & McGroarty, Frank & Brede, Markus, 2017. "The evolution of risk and bailout strategy in banking systems," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 468(C), pages 109-118.
    11. Francis, William, 2014. "UK deposit-taker responses to the financial crisis: what are the lessons?," Bank of England working papers 501, Bank of England.
    12. Shekhar Aiyar & Charles W. Calomiris & Tomasz Wieladek, 2015. "How to Strengthen the Regulation of Bank Capital: Theory, Evidence, and A Proposal," Journal of Applied Corporate Finance, Morgan Stanley, vol. 27(1), pages 27-36, March.

    More about this item

    Keywords

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

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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