Are Banks Too Big to Fail or Too Big to Save? International Evidence from Equity Prices and CDS Spreads
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 government indebtedness and deficits on bank st...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100719151708 http://hdl.handle.net/10986/3844 |
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okr-10986-3844 |
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oai_dc |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACCOUNTING ADVISORY SERVICES ASSETS RATIO AVERAGE COSTS BAD CREDIT BAILOUT BALANCE SHEETS BANK ASSET BANK ASSETS BANK BONDS BANK COMPETITION BANK CREDIT BANK CREDITORS BANK DEPOSITS BANK FAILURE BANK FAILURES BANK FOR INTERNATIONAL SETTLEMENTS BANK LIABILITIES BANK LIABILITY BANK MARKET BANK MERGERS BANK PROFITABILITY BANK REGULATION BANK RISK BANK SIZE BANK VALUATION BANKING CORPORATION BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKRUPTCY PROCEEDINGS BANKS BENCHMARK BENCHMARKS BOND BOND HOLDERS BOND MARKET BOND MARKETS BOND YIELD BONDS BOOK VALUE BORROWING BORROWING CAPACITY BUDGET BALANCE BUDGET BALANCES BUDGET CONSTRAINTS BUSINESS CYCLE CAPITAL ASSETS CAPITAL REGULATION CAPITAL REQUIREMENTS CAPITALIZATION CDS CENTRAL BANKS CENTRAL GOVERNMENT DEBT CHECKS CLAIM COMPETITIVE ADVANTAGES CONTINGENT CLAIM CONTINGENT LIABILITIES CORPORATE YIELD CREDIT DEFAULT CREDIT DEFAULT SWAP CREDIT DEFAULT SWAPS CREDIT DERIVATIVES CREDIT INSTITUTIONS CREDIT LOSSES CREDIT QUALITY CREDIT RATING CURRENCY DEBENTURE DEBENTURE HOLDERS DEBENTURES DEBT DEBT ISSUES DEBT RATIO DEFAULT RISK DEFICITS DEPENDENT DEPOSIT DEPOSIT INSTITUTION DEPOSIT INSURANCE DEPOSIT INSURANCE SCHEME DEPOSIT LIABILITIES DISTRESSED BANKS DIVIDEND DOMESTIC BANK DUMMY VARIABLE DUMMY VARIABLES EARNING ASSETS EARNINGS ECONOMIC CRISIS ECONOMIC RENTS ECONOMIES OF SCALE EMERGING MARKET EMERGING MARKET ECONOMIES EUROPEAN CENTRAL BANK EXPECTED RETURNS EXPLICIT DEPOSIT INSURANCE EXTERNALITIES FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL SAFETY FINANCIAL SAFETY NETS FINANCIAL SECTOR FINANCIAL STUDIES FINANCIAL SUPPORT FISCAL AUTHORITIES FISCAL BALANCE FISCAL BALANCES FISCAL DEFICITS FOREIGN BANK FUTURE FINANCIAL CRISIS GDP GDP PER CAPITA GOVERNMENT DEBT GOVERNMENT DEFICITS GOVERNMENT FINANCE GOVERNMENT FINANCES GOVERNMENT INDEBTEDNESS GOVERNMENT REVENUES GROSS DOMESTIC PRODUCT HIGH DEBT HOLDINGS IMPLICIT SUBSIDIES IMPLICIT SUBSIDY INDEBTED INDEBTED COUNTRIES INDIVIDUAL BANK INDIVIDUAL BANKS INFORMATION ON CREDIT INSIDER TRADING INSOLVENCY INSURED DEPOSITS INTERNATIONAL BANK INTERNATIONAL BANKING INTERNATIONAL BANKS INVESTMENT BANKS LARGE BANK LARGE BANKS LEADING INDICATORS LEVERAGE LIABILITY LIQUIDITY LOSSES ON BANK LOSSES ON BANKS MARKET DISCIPLINE MARKET PRICES MARKET VALUE MATURITY MERGER MONETARY POLICY MORAL HAZARD MORTGAGE MORTGAGE LOANS NATIONAL ECONOMIES NATIONAL ECONOMY NEGATIVE EXTERNALITIES NUMBER OF BANKS POSITIVE COEFFICIENT POSITIVE COEFFICIENTS PRICE DISCOVERY PROFITABILITY PUBLIC ASSISTANCE PUBLIC BUDGET PUBLIC DEBT PUBLIC DEBTS PUBLIC FINANCE PUBLIC FINANCES PUT OPTION REGULATORY FORBEARANCE REGULATORY RESTRICTIONS REORGANIZATION RETURN RETURN ON ASSETS RETURNS RISK DIVERSIFICATION RISK EXPOSURE RISK PROFILE SAFETY NET SECURITIES SHAREHOLDER SHAREHOLDER VALUE SHAREHOLDERS SMALL BANK SMALL BANKS SOLVENCY STOCK MARKET STOCK MARKET VOLATILITY STOCK MARKETS STOCK PRICES STOCK RETURN STOCK RETURNS SUBORDINATED DEBT SUBSIDIARIES SUBSIDIARY SWAP MARKET SYSTEMIC BANKING CRISES TAKEOVER TAX TAXATION TRADING UNION VALUATION WEALTH WEALTH EFFECT WEALTH EFFECTS WINDING-UP YIELD SPREADS |
| spellingShingle |
ACCOUNTING ADVISORY SERVICES ASSETS RATIO AVERAGE COSTS BAD CREDIT BAILOUT BALANCE SHEETS BANK ASSET BANK ASSETS BANK BONDS BANK COMPETITION BANK CREDIT BANK CREDITORS BANK DEPOSITS BANK FAILURE BANK FAILURES BANK FOR INTERNATIONAL SETTLEMENTS BANK LIABILITIES BANK LIABILITY BANK MARKET BANK MERGERS BANK PROFITABILITY BANK REGULATION BANK RISK BANK SIZE BANK VALUATION BANKING CORPORATION BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKRUPTCY PROCEEDINGS BANKS BENCHMARK BENCHMARKS BOND BOND HOLDERS BOND MARKET BOND MARKETS BOND YIELD BONDS BOOK VALUE BORROWING BORROWING CAPACITY BUDGET BALANCE BUDGET BALANCES BUDGET CONSTRAINTS BUSINESS CYCLE CAPITAL ASSETS CAPITAL REGULATION CAPITAL REQUIREMENTS CAPITALIZATION CDS CENTRAL BANKS CENTRAL GOVERNMENT DEBT CHECKS CLAIM COMPETITIVE ADVANTAGES CONTINGENT CLAIM CONTINGENT LIABILITIES CORPORATE YIELD CREDIT DEFAULT CREDIT DEFAULT SWAP CREDIT DEFAULT SWAPS CREDIT DERIVATIVES CREDIT INSTITUTIONS CREDIT LOSSES CREDIT QUALITY CREDIT RATING CURRENCY DEBENTURE DEBENTURE HOLDERS DEBENTURES DEBT DEBT ISSUES DEBT RATIO DEFAULT RISK DEFICITS DEPENDENT DEPOSIT DEPOSIT INSTITUTION DEPOSIT INSURANCE DEPOSIT INSURANCE SCHEME DEPOSIT LIABILITIES DISTRESSED BANKS DIVIDEND DOMESTIC BANK DUMMY VARIABLE DUMMY VARIABLES EARNING ASSETS EARNINGS ECONOMIC CRISIS ECONOMIC RENTS ECONOMIES OF SCALE EMERGING MARKET EMERGING MARKET ECONOMIES EUROPEAN CENTRAL BANK EXPECTED RETURNS EXPLICIT DEPOSIT INSURANCE EXTERNALITIES FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL SAFETY FINANCIAL SAFETY NETS FINANCIAL SECTOR FINANCIAL STUDIES FINANCIAL SUPPORT FISCAL AUTHORITIES FISCAL BALANCE FISCAL BALANCES FISCAL DEFICITS FOREIGN BANK FUTURE FINANCIAL CRISIS GDP GDP PER CAPITA GOVERNMENT DEBT GOVERNMENT DEFICITS GOVERNMENT FINANCE GOVERNMENT FINANCES GOVERNMENT INDEBTEDNESS GOVERNMENT REVENUES GROSS DOMESTIC PRODUCT HIGH DEBT HOLDINGS IMPLICIT SUBSIDIES IMPLICIT SUBSIDY INDEBTED INDEBTED COUNTRIES INDIVIDUAL BANK INDIVIDUAL BANKS INFORMATION ON CREDIT INSIDER TRADING INSOLVENCY INSURED DEPOSITS INTERNATIONAL BANK INTERNATIONAL BANKING INTERNATIONAL BANKS INVESTMENT BANKS LARGE BANK LARGE BANKS LEADING INDICATORS LEVERAGE LIABILITY LIQUIDITY LOSSES ON BANK LOSSES ON BANKS MARKET DISCIPLINE MARKET PRICES MARKET VALUE MATURITY MERGER MONETARY POLICY MORAL HAZARD MORTGAGE MORTGAGE LOANS NATIONAL ECONOMIES NATIONAL ECONOMY NEGATIVE EXTERNALITIES NUMBER OF BANKS POSITIVE COEFFICIENT POSITIVE COEFFICIENTS PRICE DISCOVERY PROFITABILITY PUBLIC ASSISTANCE PUBLIC BUDGET PUBLIC DEBT PUBLIC DEBTS PUBLIC FINANCE PUBLIC FINANCES PUT OPTION REGULATORY FORBEARANCE REGULATORY RESTRICTIONS REORGANIZATION RETURN RETURN ON ASSETS RETURNS RISK DIVERSIFICATION RISK EXPOSURE RISK PROFILE SAFETY NET SECURITIES SHAREHOLDER SHAREHOLDER VALUE SHAREHOLDERS SMALL BANK SMALL BANKS SOLVENCY STOCK MARKET STOCK MARKET VOLATILITY STOCK MARKETS STOCK PRICES STOCK RETURN STOCK RETURNS SUBORDINATED DEBT SUBSIDIARIES SUBSIDIARY SWAP MARKET SYSTEMIC BANKING CRISES TAKEOVER TAX TAXATION TRADING UNION VALUATION WEALTH WEALTH EFFECT WEALTH EFFECTS WINDING-UP YIELD SPREADS Demirgüç-Kunt, Asli Huizinga, Harry Are Banks Too Big to Fail or Too Big to Save? International Evidence from Equity Prices and CDS Spreads |
| relation |
Policy Research Working Paper ; No. 5360 |
| description |
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 government
indebtedness and deficits on bank stock prices and credit
default swap spreads. Overall, bank stock prices reflect a
negative capitalization of government debt and they respond
negatively to deficits. The authors present evidence that in
2008 systemically large banks saw a reduction in their
market valuation in countries running large fiscal deficits.
Furthermore, the change in bank credit default swap spreads
in 2008 relative to 2007 reflects countries'
deterioration of public deficits. The results of the
analysis suggest that some systemically important banks can
increase their value by downsizing or splitting up, as they
have become too big to save, potentially reversing the trend
to ever larger banks. The paper also documents that a
smaller proportion of banks are systemically important --
relative to gross domestic product -- in 2008 than in the
two previous years, which could reflect private incentives
to downsize. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Demirgüç-Kunt, Asli Huizinga, Harry |
| author_facet |
Demirgüç-Kunt, Asli Huizinga, Harry |
| author_sort |
Demirgüç-Kunt, Asli |
| title |
Are Banks Too Big to Fail or Too Big to Save? International Evidence from Equity Prices and CDS Spreads |
| title_short |
Are Banks Too Big to Fail or Too Big to Save? International Evidence from Equity Prices and CDS Spreads |
| title_full |
Are Banks Too Big to Fail or Too Big to Save? International Evidence from Equity Prices and CDS Spreads |
| title_fullStr |
Are Banks Too Big to Fail or Too Big to Save? International Evidence from Equity Prices and CDS Spreads |
| title_full_unstemmed |
Are Banks Too Big to Fail or Too Big to Save? International Evidence from Equity Prices and CDS Spreads |
| title_sort |
are banks too big to fail or too big to save? international evidence from equity prices and cds spreads |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100719151708 http://hdl.handle.net/10986/3844 |
| _version_ |
1764388633725370368 |
| spelling |
okr-10986-38442021-04-23T14:02:13Z Are Banks Too Big to Fail or Too Big to Save? International Evidence from Equity Prices and CDS Spreads Demirgüç-Kunt, Asli Huizinga, Harry ACCOUNTING ADVISORY SERVICES ASSETS RATIO AVERAGE COSTS BAD CREDIT BAILOUT BALANCE SHEETS BANK ASSET BANK ASSETS BANK BONDS BANK COMPETITION BANK CREDIT BANK CREDITORS BANK DEPOSITS BANK FAILURE BANK FAILURES BANK FOR INTERNATIONAL SETTLEMENTS BANK LIABILITIES BANK LIABILITY BANK MARKET BANK MERGERS BANK PROFITABILITY BANK REGULATION BANK RISK BANK SIZE BANK VALUATION BANKING CORPORATION BANKING CRISES BANKING CRISIS BANKING INDUSTRY BANKING SECTOR BANKING SYSTEM BANKING SYSTEMS BANKRUPTCY BANKRUPTCY PROCEEDINGS BANKS BENCHMARK BENCHMARKS BOND BOND HOLDERS BOND MARKET BOND MARKETS BOND YIELD BONDS BOOK VALUE BORROWING BORROWING CAPACITY BUDGET BALANCE BUDGET BALANCES BUDGET CONSTRAINTS BUSINESS CYCLE CAPITAL ASSETS CAPITAL REGULATION CAPITAL REQUIREMENTS CAPITALIZATION CDS CENTRAL BANKS CENTRAL GOVERNMENT DEBT CHECKS CLAIM COMPETITIVE ADVANTAGES CONTINGENT CLAIM CONTINGENT LIABILITIES CORPORATE YIELD CREDIT DEFAULT CREDIT DEFAULT SWAP CREDIT DEFAULT SWAPS CREDIT DERIVATIVES CREDIT INSTITUTIONS CREDIT LOSSES CREDIT QUALITY CREDIT RATING CURRENCY DEBENTURE DEBENTURE HOLDERS DEBENTURES DEBT DEBT ISSUES DEBT RATIO DEFAULT RISK DEFICITS DEPENDENT DEPOSIT DEPOSIT INSTITUTION DEPOSIT INSURANCE DEPOSIT INSURANCE SCHEME DEPOSIT LIABILITIES DISTRESSED BANKS DIVIDEND DOMESTIC BANK DUMMY VARIABLE DUMMY VARIABLES EARNING ASSETS EARNINGS ECONOMIC CRISIS ECONOMIC RENTS ECONOMIES OF SCALE EMERGING MARKET EMERGING MARKET ECONOMIES EUROPEAN CENTRAL BANK EXPECTED RETURNS EXPLICIT DEPOSIT INSURANCE EXTERNALITIES FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL SAFETY FINANCIAL SAFETY NETS FINANCIAL SECTOR FINANCIAL STUDIES FINANCIAL SUPPORT FISCAL AUTHORITIES FISCAL BALANCE FISCAL BALANCES FISCAL DEFICITS FOREIGN BANK FUTURE FINANCIAL CRISIS GDP GDP PER CAPITA GOVERNMENT DEBT GOVERNMENT DEFICITS GOVERNMENT FINANCE GOVERNMENT FINANCES GOVERNMENT INDEBTEDNESS GOVERNMENT REVENUES GROSS DOMESTIC PRODUCT HIGH DEBT HOLDINGS IMPLICIT SUBSIDIES IMPLICIT SUBSIDY INDEBTED INDEBTED COUNTRIES INDIVIDUAL BANK INDIVIDUAL BANKS INFORMATION ON CREDIT INSIDER TRADING INSOLVENCY INSURED DEPOSITS INTERNATIONAL BANK INTERNATIONAL BANKING INTERNATIONAL BANKS INVESTMENT BANKS LARGE BANK LARGE BANKS LEADING INDICATORS LEVERAGE LIABILITY LIQUIDITY LOSSES ON BANK LOSSES ON BANKS MARKET DISCIPLINE MARKET PRICES MARKET VALUE MATURITY MERGER MONETARY POLICY MORAL HAZARD MORTGAGE MORTGAGE LOANS NATIONAL ECONOMIES NATIONAL ECONOMY NEGATIVE EXTERNALITIES NUMBER OF BANKS POSITIVE COEFFICIENT POSITIVE COEFFICIENTS PRICE DISCOVERY PROFITABILITY PUBLIC ASSISTANCE PUBLIC BUDGET PUBLIC DEBT PUBLIC DEBTS PUBLIC FINANCE PUBLIC FINANCES PUT OPTION REGULATORY FORBEARANCE REGULATORY RESTRICTIONS REORGANIZATION RETURN RETURN ON ASSETS RETURNS RISK DIVERSIFICATION RISK EXPOSURE RISK PROFILE SAFETY NET SECURITIES SHAREHOLDER SHAREHOLDER VALUE SHAREHOLDERS SMALL BANK SMALL BANKS SOLVENCY STOCK MARKET STOCK MARKET VOLATILITY STOCK MARKETS STOCK PRICES STOCK RETURN STOCK RETURNS SUBORDINATED DEBT SUBSIDIARIES SUBSIDIARY SWAP MARKET SYSTEMIC BANKING CRISES TAKEOVER TAX TAXATION TRADING UNION VALUATION WEALTH WEALTH EFFECT WEALTH EFFECTS WINDING-UP YIELD SPREADS 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 government indebtedness and deficits on bank stock prices and credit default swap spreads. Overall, bank stock prices reflect a negative capitalization of government debt and they respond negatively to deficits. The authors present evidence that in 2008 systemically large banks saw a reduction in their market valuation in countries running large fiscal deficits. Furthermore, the change in bank credit default swap spreads in 2008 relative to 2007 reflects countries' deterioration of public deficits. The results of the analysis suggest that some systemically important banks can increase their value by downsizing or splitting up, as they have become too big to save, potentially reversing the trend to ever larger banks. The paper also documents that a smaller proportion of banks are systemically important -- relative to gross domestic product -- in 2008 than in the two previous years, which could reflect private incentives to downsize. 2012-03-19T18:40:48Z 2012-03-19T18:40:48Z 2010-07-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100719151708 http://hdl.handle.net/10986/3844 English Policy Research Working Paper ; No. 5360 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper |