Too Rich to Let Me Fail?

Bruno Martins () and Ricardo Schechtman

No 13, Documentos de Investigación - Research Papers from CEMLA

Abstract: Due to the perception of an implicit public guarantee, Banks too-big-to-fail may charge lower loan rates for the same risk in comparison to other groups of banks. However, empirically identifying such effect is challenging because size has many other advantages to banks besides the implicit guarantee. This paper makes use of the natural experiment represented by the discovery of new and large Brazilian oil reserves to conjecture an increase in the bailout perception of some Brazilian banks (the proposed too-rich- to-let-me-fail argument). It then investigates how the difference in loan pricing behavior across banks of different sizes has changed after the discovery. Results show that the difference of loan rates between medium and large banks decreases after the discovery. One possible explanation is that the conjectured increase in the bail-out perception affects mostly medium banks, which are at the margin to become too-big-to-fail, although other explanations are also feasible.

Keywords: too-big-to-fail; loan pricing; oil discovery (search for similar items in EconPapers)
JEL-codes: C21 G21 G3 (search for similar items in EconPapers)
Pages: 29
Date: 2013-11
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.cemla.org/PDF/investigacion/inv-2013-11-13.pdf 2013 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cml:docinv:13

Ordering information: This working paper can be ordered from
http://www.cemla.org

Access Statistics for this paper

More papers in Documentos de Investigación - Research Papers from CEMLA Center for Latin American Monetary Studies (CEMLA), Durango 54, Col. Roma, Mexico City, 06700, Mexico. Contact information at EDIRC.
Bibliographic data for series maintained by Matias Ossandon Busch ().