Financial reform must not ignore the interests of small stakeholders – who must be regarded as too small to be counted. Making equity an explicit objective is delicate: it needs to be calibrated such that the vulnerable are not exposed to further risks. Policies outside the realm of financial...

The Global Financial Crisis of 2007-2009 put the spotlight on the problem of too-big-to-fail (TBTF). The research conducted in this context has, however, generally focused on the econometric aspect and the contribution of the TBTF doctrine to the financial crisis of 2007-2009, while the economic...

We examine sources of systemic risk (threshold size, complexity, and interconnectedness) with factors constructed from equity returns of large financial firms, after accounting for standard risk factors. From the factor loadings and factor returns, we estimate the implicit government subsidy for...

Our concern in this article is two-fold: first to see whether the determinants of bank distress and failure have been any different in the GFC from previous years: second to see whether simple measures of capital adequacy outperform their risk-weighted counterparts as predictors, despite the...

We replicate three bank failure models (Martin (1977), Cole and White (2012), and DeYoung and Torna (2013)) and introduce a new predictive model along with several evaluation methods to compare their out-of-sample predictive accuracy. We find that the models are highly accurate individually, and...

The recent financial crisis and economic recession has shown that bank failure in the United States, while rare is a concern during uncertain times. Understanding the magnitude of banks at risk early in a crisis is a key challenge faced by policymakers. Early warning models are quite accurate at...

Does limiting the size of a large bank reduce its insolvency risk? This paper shows that the answer to this question depends on how exactly paring down of the bank size is done. In fact, the insolvency risk may go down or up depending on the composition of assets and liabilities of the bank...

This paper examines the potential distortion of prices in the CDS market caused by too-big-to-fail. Overall, we find evidence for market discipline in the CDS market. However, CDS prices are distorted due to a size effect which arises when investors expect a public bail-out as a result of...

This paper traces the origin of the too-big-to-fail problem in banking to the bailout of the $1.2 billion Bank of the Commonwealth in 1972. It describes this bailout and those of subsequent banks through that of Continental Illinois in 1984. Motivations behind the bailouts are described with a...

This study develops a model for predicting distress events among large banks. We conjecture that a bailout possibility induces different behaviors among small and large banks and therefore separate models may be need for early warning models. We indeed find that a failure prediction model for...