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Financial Stability Paper 32: Estimating the extent of the ‘too big to fail’ problem – a review of existing approaches

Author

Listed:
  • Siegert, Casper

    (Bank of England)

  • Willison, Matthew

    (Bank of England)

Abstract
How big is the ‘too big to fail’ (TBTF) problem? Different approaches have been developed to estimate the impact being perceived as TBTF might have on banks’ costs of funding. One approach is to look at how the values of banks’ equity and debt change in response to events that may have altered expectations that banks are TBTF. Another is to estimate whether debt costs vary across banks according to features that make them more or less likely to be considered TBTF. A third approach is to estimate a model of the expected value of government support to banks in distress. We review these different approaches, discussing their pros and cons. Policy measures are being implemented to end the TBTF problem. Approaches to estimating the extent of the problem could play a useful role in the future in evaluating the success of those policies. With that in mind, we conclude by outlining in what ways we think approaches need to develop and suggest ideas for future research.

Suggested Citation

  • Siegert, Casper & Willison, Matthew, 2015. "Financial Stability Paper 32: Estimating the extent of the ‘too big to fail’ problem – a review of existing approaches," Bank of England Financial Stability Papers 32, Bank of England.
    • Handle: RePEc:boe:finsta:0032
    Note: http://www.bankofengland.co.uk/financialstability/Pages/fpc/fspapers/fs_paper32.aspx
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    References listed on IDEAS

    as
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    Cited by:

    1. Catão, Luís A.V. & te Kaat, Daniel Marcel, 2021. "Capital account liberalization and the composition of bank liabilities," Journal of International Money and Finance, Elsevier, vol. 116(C).
    2. Melanie Hekwolter of Hekhuis & Rob Nijskens & Willem Heeringa, 2017. "The housing market in major Dutch cities," DNB Occasional Studies 1501, Netherlands Central Bank, Research Department.
    3. Claessens, Stijn & Coleman, Nicholas & Donnelly, Michael, 2018. "“Low-For-Long” interest rates and banks’ interest margins and profitability: Cross-country evidence," Journal of Financial Intermediation, Elsevier, vol. 35(PA), pages 1-16.
    4. Patricia Palhau Mora, 2018. "The “Too Big to Fail” Subsidy in Canada: Some Estimates," Staff Working Papers 18-9, Bank of Canada.
    5. Pietro Alessandrini & Michele Fratianni & Luca Papi & Alberto Zazzaro, 2016. "The asymmetric burden of regulation: will local banks survive?," Mo.Fi.R. Working Papers 125, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    6. Mark Cassidy & Niamh Hallissey, 2016. "The Introduction of Macroprudential Measures for the Irish Mortgage Market," The Economic and Social Review, Economic and Social Studies, vol. 47(2), pages 271-297.
    7. Luis Arturo Bárcenas & Lorena Barreiro & Carolina Pagliacci, 2016. "What Is the Role of Size in Latin American Banks’ Performancein Response to External Shocks?," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(2), pages 233-273, july-dece.

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    More about this item

    Keywords

    bank regulation; too big to fail;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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