Too many to fail
Subtitle: an analysis of time-inconsistency in bank closure policies
By: Viral Acharya and Tanju Yorulmazer
Contributors: Yorulmazer, Tanju, 1972-; Bank of England
Series: Working paper -- no. 319; Working paper (Bank of England : Online) -- no. 319.
Publisher: Bank of England
Published: 2007
Place of publication: London
Language: eng
Format: [electronic resource] :
Subjects: Bank failures; Banking law; Moral hazard
Description: "While the 'too-big-to-fail' guarantee is explicitly a part of bank regulation in many countries, this  paper shows that bank closure policies also suffer from an implicit 'too-many-to-fail' problem:  when the number of bank failures is large, the regulator  nds it ex-post optimal to bail out some or  all failed banks, whereas when the number of bank failures is small, failed banks can be acquired  by the surviving banks. This gives banks incentives to herd and increases the risk that many banks  may fail together. The ex-post optimal regulation may thus be time-inconsistent or suboptimal  from an ex-ante standpoint. In contrast to the too-big-to-fail problem which mainly affects large  banks, we show that the too-many-to-fail problem affects small banks more by giving them  stronger incentives to herd."--Bank of England web site.
Notes: Title from PDF file as viewed on Oct. 22, 2007.

Includes bibliographical references.

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