‘Too systemically important to fail’ in banking – Evidence from bank mergers and acquisitions

Philip Molyneux (), Klaus Schaeck and Tim Zhou

Journal of International Money and Finance, 2014, vol. 49, issue PB, 258-282

Abstract: In this paper, we examine the systemic risk implications of banking institutions that are considered ‘Too-systemically-important-to-fail’ (TSITF). We exploit a sample of bank mergers and acquisitions (M&As) in nine EU economies between 1997 and 2007 to capture safety net subsidy effects and evaluate their ramifications for systemic risk. We find that safety net benefits derived from M&A activity have a significantly positive association with rescue probability, suggesting moral hazard in banking systems. We, however, find no evidence that gaining safety net subsidies leads to TSITF bank's increased interdependency over peer banks.

Keywords: Systemic importance; Systemic risk; Mergers and acquisitions; Banking (search for similar items in EconPapers)
JEL-codes: G14 G18 G21 G34 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:49:y:2014:i:pb:p:258-282

DOI: 10.1016/j.jimonfin.2014.03.006

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