Safety-Net Benefits Conferred on Difficult-to-Fail-and-Unwind Banks in the US and EU Before and During the Great Recession
This paper models and estimates ex ante safety-net benefits at a sample of large banks in US and Europe during 2003-2008. Our results suggest that difficult-to-fail and unwind (DFU) banks enjoyed substantially higher ex ante benefits than other institutions. Safety-net benefits prove significantly larger for DFU firms in Europe and bailout decisions less driven by asset size than in the US. We also find that a proxy for regulatory capture helps to explain bailout decisions in Europe. A policy implication of our findings is that authorities could better contain safety-net benefits if they refocused their information systems on measuring volatility as well as capital.
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Copy CitationSantiago Carbo-Valverde, Edward J. Kane, and Francisco Rodriguez-Fernandez, "Safety-Net Benefits Conferred on Difficult-to-Fail-and-Unwind Banks in the US and EU Before and During the Great Recession," NBER Working Paper 16787 (2011), https://doi.org/10.3386/w16787.Download Citation
Published Versions
Santiago Carbo-Valverde & Edward J. Kane & Francisco Rodriquez-Fernandez, 2011. "Safety-net benefits conferred on difficulty-to-fail-and-unwind banks in the U.S. and EU before and during the Great Recession," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 327-332.
Carbó-Valverde, Santiago & Kane, Edward J. & Rodriguez-Fernandez, Francisco, 2013. "Safety-net benefits conferred on difficult-to-fail-and-unwind banks in the US and EU before and during the great recession," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1845-1859. citation courtesy of 
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