How credible is a too-big-to-fail policy? International evidence from market discipline

Cubillas, Elena; Fernández, Ana Isabel; González, Francisco

doi:10.1016/j.jfi.2015.11.003

Cited by 44 publications

(25 citation statements)

References 37 publications

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“…Consistent with the work of Cubillas et al . (, ), our interpretation of dynamic system GMM estimates corroborates our main findings that are fixed effects estimates. Finally, we consider 2007 as our crisis cut‐off point, and our main results remain unchanged…”

Section: Robustness Checkssupporting

confidence: 88%

Does market discipline impact bank charter value? The case for Australia and Canada

Haq

Avkiran

Tarazi

2016

Accounting & Finance

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This study analyses the relation between market discipline and bank charter value using a panel data set of publicly listed domestic banks in Australia and Canada over the period of 1995-2011, with a focus on the 2007-2008 global financial crisis (GFC). Overall, the results show a positive relation between market discipline and bank charter value, but this relation is weaker in the post-GFC period. Our findings reveal that in the presence of market discipline, bank capital, contingent liabilities and non-interest income are important sources of charter value. These findings have important policy implications related to bank stability. The results are robust to several model specifications. Accounting and Finance 59 (2019) 253-276 © 2016 AFAANZ © 2016 AFAANZ 12 Banks tend to trade-off high interest rate with low fee income and vice versa in Australia (Liu and Roca, 2015.). 13 Hagendorff and Keasey (2009) show that US banks, in particular, raised their noninterest income in the post-merger period.

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Section: Robustness Checkssupporting

confidence: 88%

Does market discipline impact bank charter value? The case for Australia and Canada

Haq

Avkiran

Tarazi

2016

Accounting & Finance

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“…The higher the value of the bank Z-score, the greater the solvency of the country's financial institutions. Laeven and Levine (2009) and Cubillas et al (2017), among others, have used the Z-score as a proxy for bank insolvency risk. The bank Z-score was obtained from the World Bank's Financial Structure database.…”

Section: Banking Structurementioning

confidence: 99%

Institutions, banking structure and the cost of debt: new international evidence

Álvarez‐Botas

González

2019

Accounting & Finance

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Cost of debt, institutions, depth of credit information, banking structure. a We wish to thank participants at the ACEDE Conference in Vigo (2016) for helpful comments and suggestions. Funding from the Spanish Ministry of Economy and Competitiveness via Project ECO2015-66184-R and financial support from the Government of the Principality of Asturias via the Severo Ochoa programme of pre-doctoral grants are gratefully acknowledged.

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“…0.5, and 0 otherwise. This variable controls for the systemic importance of a bank and for potential to Too-Big-to-be-Rescued considerations (see e.g., Völz and Wedow, 2011;Cubillas et al, 2017). The interaction term TBTF X INTERNAL is negative and highly significant in all model specifications, providing robust evidence that the CDS spreads of TBTF banks are considerably less affected by rating downgrades than those of non-TBTF banks.…”

Section: Regression Resultsmentioning

confidence: 87%

“…For international samples, the more recent definition of Global Systemically Important Banks (G-SIBs) 15 is often used (e.g., . The size of a bank's total assets is clearly important to be perceived as being TBTF, and several studies that use samples consisting of international banks (e.g., Demirgüc-Kunt and Huizinga, 2013;Cubillas et al, 2017) focus on some measures based on total assets. As we likewise have an international sample of financial institutions from 36 different countries, we define TBTF by the total assets of a bank in its country of origin relative to other banks in that country.…”

Section: The Impact Of Rating Downgrades On the Cds Spreads Of Too-bimentioning

confidence: 99%

“…We believe it is reasonable to assume that a national government would not allow one of the three largest financial institution in the country to fail, as the repercussion for the financial system are potentially too severe, thereby justifying a government bailout. This definition of TBTF is also used by Cubillas et al (2017). Table 5 presents the results of the CDS event study comparing rating downgrades due to internal reason for TBTF and non-TBTF banks.…”

Section: The Impact Of Rating Downgrades On the Cds Spreads Of Too-bimentioning

confidence: 99%

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Market Discipline through Credit Ratings and Too-Big-to-Fail in Banking

2018

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Do credit ratings help enforce market discipline on banks? Analyzing a uniquely comprehensive dataset consisting of 1,081 rating change announcements for 154 international financial institutions between January 2004 and December 2015, we find that rating downgrades for internal reasons, such as adverse changes in the operating performance or capital structure of banks, are associated with a significant CDS spread widening. However, this widening only occurs for banks that are not perceived as to be Too-Big-to-Fail (TBTF). Our findings question the reliability of credit ratings as a tool to discipline TBTF banks and suggest that regulatory monitoring should remain the main mechanism for disciplining these banks.

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How credible is a too-big-to-fail policy? International evidence from market discipline

Cited by 44 publications

References 37 publications

Does market discipline impact bank charter value? The case for Australia and Canada

Does market discipline impact bank charter value? The case for Australia and Canada

Institutions, banking structure and the cost of debt: new international evidence

Market Discipline through Credit Ratings and Too-Big-to-Fail in Banking

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