'Too systemically important to fail' in banking - Evidence from bank mergers and acquisitions

Philip Molyneux*, Klaus Schaeck, Tim Mi Zhou

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)

21 Citations (Scopus)

Abstract

In this paper, we examine the systemic risk implications of banking institutions that are considered 'Too-systemically-important-to-fail' (TSITF). We exploit a sample of bank mergers and acquisitions (M&As) in nine EU economies between 1997 and 2007 to capture safety net subsidy effects and evaluate their ramifications for systemic risk. We find that safety net benefits derived from M&A activity have a significantly positive association with rescue probability, suggesting moral hazard in banking systems. We, however, find no evidence that gaining safety net subsidies leads to TSITF bank's increased interdependency over peer banks.

Original languageEnglish
Pages (from-to)258-282
Number of pages25
JournalJournal of International Money and Finance
Volume49
Issue numberPB
DOIs
Publication statusPublished - 1 Dec 2014

Keywords

  • Banking
  • G14
  • G18
  • G21
  • G34
  • Mergers and acquisitions
  • Systemic importance
  • Systemic risk

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