Does Size Matter ? Bailouts with Large and Small Banks

@inproceedings{Davila2011DoesSM,
  title={Does Size Matter ? Bailouts with Large and Small Banks},
  author={Eduardo Davila},
  year={2011}
}
Yes, size actually matters. This paper models the strategic interaction between banks and the government when bailouts are possible. I analyze how imperfect common knowledge about the government’s bailout policy affects the ex-ante leverage choice for each bank. Large banks, by internalizing the effect of their size on the likelihood of being bailed out… CONTINUE READING