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Is Too-Big-To-Fail Policy Effective for US Banks in an International Currency Crisis?

Author

Listed:
  • Zhaohui Zhang

    (Department of Finance, College of Management, Long Island University — C. W. Post, Brookville, NY 11548, USA)

  • Khondkar E. Karim

    (Department of Accounting and Finance, College of Business, Rochester Institute of Technology, Rochester, NY 14623, USA)

Abstract

This study investigates the current role of the US "too-big-to-fail" (TBTF) policy for US banks in an international currency crisis in late 1997. It has been documented (Zhang, 2001) that the International Monetary Fund (IMF) term loan announcements concerning South Korea in late 1997 significantly increased the implicit value of the US bank loans and investments to South Korea and hence, the equity values of its US bank creditors. Using the market model, this paper examines the potential abnormal performance of the TBTF banks and the non-TBTF banks from different perspectives during mid-November to early December 1997. The evidence indicates the potential effectiveness of the implicit TBTF policy for US banks in the international currency crisis and the existence of the different pricing behavior of different groups of banks.

Suggested Citation

  • Zhaohui Zhang & Khondkar E. Karim, 2004. "Is Too-Big-To-Fail Policy Effective for US Banks in an International Currency Crisis?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 311-333.
    • Handle: RePEc:wsi:rpbfmp:v:07:y:2004:i:03:n:s0219091504000196
    DOI: 10.1142/S0219091504000196
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    References listed on IDEAS

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    1. Edward J. Kane, 2000. "Incentives for banking megamergers: what motives might regulators infer from event-study evidence?," Proceedings, Federal Reserve Bank of Cleveland, pages 671-705.
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    2. repec:mpr:mprres:4379 is not listed on IDEAS

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    More about this item

    Keywords

    TBTF; IMF term loans; bank returns; event studies; JEL Classification G14; JEL Classification G21; JEL Classification G28; JEL Classification F33; JEL Classification F34;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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