Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments March 1, 2023 erstellt
Beschreibung:
The degree to which financial institutions form expectations of policy intervention despite their own risk appetites lies at the heart of macrofinancial regulations such as the Dodd-Frank and Consumer Protection Acts. The effectiveness of these policies hinge on the assumption that large banks are the only banks that are too-big-to-fail (TBTF). However, alternative perspectives posit that banks may be too-complex-to-fail, regardless of their size. To remedy competing TBTF definitions, we propose a new criterion to identify potential TBTF banks by their relative involvement in so-called critical markets, considerate of both bank size and complexity. We estimate a restricted translog semiparametric smooth coefficient seemingly unrelated regressions model (SPSC SUR) wherein model elasticities are functions of nonperforming assets, a proxy for moral hazard, to derive nonperformance-adjusted returns-to-scale estimates for critical market banks from 2001 through 2021. Over our full sample, the median critical market bank tends to operate under increasing returns-to-scale while half of all critical market banks exhibit slight decreasing returns-to-scale. Results taken over the past two decades suggest that most TBTF banks have exhausted their economies of scale concurrent with the shrinking competitive landscape