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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. Michael Ehrmann & Leonardo Gambacorta & Jorge Mart�nez-Pag�s & Patrick Sevestre & Andreas Worms, 2001. "Fynancial Systems and the Role of Banks in Monetary Policy Transmission in the Euro area," Temi di discussione (Economic working papers) 432, Bank of Italy, Economic Research and International Relations Area.
    2. Luc Laeven & Fabian Valencia, 2010. "Resolution of Banking Crises; The Good, the Bad, and the Ugly," IMF Working Papers 10/146, International Monetary Fund.
    3. repec:hrv:faseco:30747188 is not listed on IDEAS
    4. 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.
    5. Eduardo Levy-Yeyat & Alejandro Micco & Ugo Panizza, 2007. "A Reappraisal of State-Owned Banks," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 209-259, January.
    6. Tigran Poghosyan & Martin Cihak, 2009. "Distress in European Banks; An Analysis Basedon a New Dataset," IMF Working Papers 09/9, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    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. 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.
    3. Stefan Avdjiev & Elod Takats, 2016. "Monetary policy spillovers and currency networks in cross-border bank lending," BIS Working Papers 549, Bank for International Settlements.
    4. 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.
    5. Hryckiewicz, Aneta, 2014. "The problem with government interventions: The wrong banks, inadequate strategies, or ineffective measures?," MPRA Paper 64074, University Library of Munich, Germany.
    6. repec:eee:finlet:v:22:y:2017:i:c:p:74-80 is not listed on IDEAS
    7. 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.
    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. 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.
    10. 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.
    11. Gerhardt, Maria & Vennet, Rudi Vander, 2017. "Bank bailouts in Europe and bank performance," Finance Research Letters, Elsevier, vol. 22(C), pages 74-80.
    12. 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.
    13. Francis, William, 2014. "UK deposit-taker responses to the financial crisis: what are the lessons?," Bank of England working papers 501, Bank of England.

    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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