Is Too-Big-To-Fail Policy Effective for US Banks in an International Currency Crisis?

Zhaohui Zhang and Khondkar E. Karim ()
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Zhaohui Zhang: Department of Finance, College of Management, Long Island University — C. W. Post, Brookville, NY 11548, USA
Khondkar E. Karim: Department of Accounting and Finance, College of Business, Rochester Institute of Technology, Rochester, NY 14623, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2004, vol. 07, issue 03, 311-333

Abstract: This study investigates the current role of the US "too-big-to-fail" (TBTF) policy for US banks in an international currency crisis in late 1997. It has been documented (Zhang, 2001) that the International Monetary Fund (IMF) term loan announcements concerning South Korea in late 1997 significantly increased the implicit value of the US bank loans and investments to South Korea and hence, the equity values of its US bank creditors. Using the market model, this paper examines the potential abnormal performance of the TBTF banks and the non-TBTF banks from different perspectives during mid-November to early December 1997. The evidence indicates the potential effectiveness of the implicit TBTF policy for US banks in the international currency crisis and the existence of the different pricing behavior of different groups of banks.

Keywords: TBTF; IMF term loans; bank returns; event studies; JEL Classification G14; JEL Classification G21; JEL Classification G28; JEL Classification F33; JEL Classification F34 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219091504000196

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