N°24-11: Do "Too-Big-To-Fail" Banks Receive Preferential Treatment in Bailouts? Surprising Results from a Cross-Country Analysis

Regulators more often bail out "Too-Big-To-Fail" banks than others, but this may not imply preferential treatment as commonly believed. Bailouts are complex dynamic processes involving more than one-time aid, so harsh treatments elsewhere in the process may counter the benefits of the higher likelihood of bailouts for these banks. Using bailout data from 22 European countries we find relatively harsh treatment for Globally-Systemically Important Banks. Regulators bail out G SIBs at later stages of financial deterioration, impose stronger restrictions, and withdraw aid after less significant recoveries. We explain these findings using cross-country data on supervisory powers, political connections, and national culture.