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Safety-Net Benefits Conferred on Difficult-to-Fail-and-Unwind Banks in the US and EU Before and During the Great Recession

  • Santiago Carbo-Valverde
  • Edward J. Kane
  • Francisco Rodriguez-Fernandez

This paper models and estimates ex ante safety-net benefits at a sample of large banks in US and Europe during 2003-2008. Our results suggest that difficult-to-fail and unwind (DFU) banks enjoyed substantially higher ex ante benefits than other institutions. Safety-net benefits prove significantly larger for DFU firms in Europe and bailout decisions less driven by asset size than in the US. We also find that a proxy for regulatory capture helps to explain bailout decisions in Europe. A policy implication of our findings is that authorities could better contain safety-net benefits if they refocused their information systems on measuring volatility as well as capital.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16787.

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Date of creation: Feb 2011
Date of revision:
Publication status: published as Santiago Carbo-Valverde & Edward J. Kane & Francisco Rodriquez-Fernandez, 2011. "Safety-net benefits conferred on difficulty-to-fail-and-unwind banks in the U.S. and EU before and during the Great Recession," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 327-332.
Handle: RePEc:nbr:nberwo:16787
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