Ending "too big to fail"
Subtitle: government promises vs. investor perceptions
By: Todd A. Gormley, Simon Johnson, Changyong Rhee
Contributors: Johnson, Simon; Rhee, Changyong; National Bureau of Economic Research
Series: NBER working paper series -- working paper 17518; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17518.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "Can a government credibly promise not to bailout firms whose failure would have major negative systemic consequences? Our analysis of Korea's 1997-99 crisis, suggests an answer: No.  Despite a general "no bailout" policy during the crisis, the largest Korean corporate groups (chaebol) -facing severe financial and governance problems - could still borrow heavily from households through issuing bonds at prices implying very low expected default risk.  The evidence suggests "too big to fail" beliefs were not eliminated by government promises, presumably because investors believed that this policy was not time consistent.  Subsequent government handling of potential and actual defaults by Daewoo and Hyundai confirmed the market view that creditors would be protected"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 1/5/2012.

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