 Are banks too big to fail or too big to save? International evidence from equity prices and CDS spreadsAsli Demirguc-Kunt and Harry Huizinga Journal of Banking & Finance, 2013, vol. 37, issue 3, 875-894 Abstract: Deteriorating public finances around the world raise doubts about countries’ abilities to bail out their largest banks. For an international sample of banks, this paper investigates the impact of bank size and government deficits on bank stock prices and CDS spreads. We find that a bank’s market-to-book value is negatively related to the size of its liabilities-to-GDP ratio, especially in countries running large public deficits. CDS spreads appear to decrease with stronger public finances. These results suggest that systemically important banks can increase their value by downsizing or splitting up, especially if they are located in countries with weak public finances. We document that banks’ average liabilities-to-GDP ratio reached a peak in 2007 before a significant drop in 2008, which could reflect these private incentives to downsize. Keywords: Banking; Financial crisis; Credit default swap; Too big to fail; Too big to save (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:3:p:875-894 DOI: 10.1016/j.jbankfin.2012.10.010 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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