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Does size matter? Bailouts with large and small banks
File | Description | Size | Format | |
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bailout_final_JFE_format.pdf | Accepted version | 1.06 MB | Adobe PDF | View/Open |
Title: | Does size matter? Bailouts with large and small banks |
Authors: | Davila, E Walther, A |
Item Type: | Journal Article |
Abstract: | We explore how large and small banks make funding decisions when system-wide bailouts arepossible. We show that bank size, purely on strategic grounds, is a key determinant of banks’leverage choices, even when bailout policies treat large and small banks symmetrically. Large banksleverage more than small banks because they internalize that their decisions directly affect bailoutpolicies. In equilibrium, this effect is amplified by strategic spillovers to small banks, since banks’leverage choices are strategic complements. Overall, the presence of large banks makes bailoutsmore likely. The optimal regulation features size-dependent policies that disproportionately restrictlarge banks’ leverage. |
Issue Date: | 1-Apr-2020 |
Date of Acceptance: | 31-Mar-2019 |
URI: | http://hdl.handle.net/10044/1/70209 |
DOI: | 10.1016/j.jfineco.2019.09.005 |
ISSN: | 0304-405X |
Publisher: | Elsevier |
Start Page: | 1 |
End Page: | 22 |
Journal / Book Title: | Journal of Financial Economics |
Volume: | 136 |
Issue: | 1 |
Keywords: | Social Sciences Business, Finance Economics Business & Economics Bailouts Bank regulation Too big to fail Too many to fail Size tax LOAN RATE MARKUP FINANCIAL FRAGILITY TIME-INCONSISTENCY CRISES COST FAIL TOO 1402 Applied Economics 1502 Banking, Finance and Investment 1606 Political Science Finance |
Publication Status: | Published |
Online Publication Date: | 2019-09-24 |
Appears in Collections: | Imperial College Business School |