Too Many To Fail? Evidence of Regulatory Reluctance in Bank Failures when the Banking Sector is Weak
Review of Financial Studies, forth. (with Craig Brown)
This paper studies bank failures in 21 emerging market countries in the 1990s. By using a competing risk hazard model for bank survival, we show that a government is less likely to take over or close a failing bank if the banking system is weak. This Too-Many-to-Fail effect is robust to controlling for macroeconomic factors, financial crises, the Too-Big-To-Fail effect, domestic financial development, and concerns due to systemic risk and information spillovers. The paper also shows that the Too-Many-to-Fail effect is stronger for larger banks and when there is a large government budget deficit
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