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Too-Big-to-Fail in Banking

Impact of G-SIB Designation and Regulation on Relative Equity Valuations

  • Book
  • © 2021

Overview

Authors:
  1. Tom Filip Lesche

    1. Faculty of Management and Economics, Witten/Herdecke University, Witten, Germany

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Table of contents (13 chapters)

  1. Front Matter

    Pages i-xix
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  2. Introduction and Overview

    • Tom Filip Lesche
    Pages 1-9

  3. A Primer for Economics of Banking

    • Tom Filip Lesche
    Pages 11-33

  4. Too-Big-to-Fail in Banking Review

    1. Front Matter

      Pages 35-35
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    2. Introduction to Too-Big-to-Fail in Banking

      • Tom Filip Lesche
      Pages 37-62

    3. TBTF Causal Chain: Explicit and Implicit Government Guarantees

      • Tom Filip Lesche
      Pages 63-82

    4. Public Costs and Benefits of TBTF

      • Tom Filip Lesche
      Pages 83-96

    5. TBTF Policy Recommendations

      • Tom Filip Lesche
      Pages 97-117

    6. TBTF Policy Initiatives

      • Tom Filip Lesche
      Pages 119-131

    7. Conclusion

      • Tom Filip Lesche
      Pages 133-141

  5. Quantifying the Shareholder Value of Too-Big-to-Fail in Banking

    1. Front Matter

      Pages 143-143
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    2. Related Research

      • Tom Filip Lesche
      Pages 145-170

    3. Hypothesis Development

      • Tom Filip Lesche
      Pages 171-174

    4. Empirical Methodology and Data

      • Tom Filip Lesche
      Pages 175-196

    5. Results and Discussion

      • Tom Filip Lesche
      Pages 197-215

    6. Conclusion

      • Tom Filip Lesche
      Pages 217-221

  6. Back Matter

    Pages 223-248
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Keywords

About this book

This book provides a comprehensive summary of the latest academic research on the important topic of too-big-to-fail (TBTF) in banking. It explains TBTF from various perspectives including the range of regulatory measures proposed to counter TBTF, most notably the globally accepted regulation of global-systemically important banks (G-SIBs) and its main tool of capital surcharges. The empirical analysis quantifies the shareholder value of the G-SIB attribution by using quarterly observations from more than 750 global banks between Q2 2008 and Q3 2015. The main finding is that G-SIBs are confronted with a substantial relative valuation discount compared to non-G-SIBs. From the end of 2011 until the end of 2015, a stable discount of 0.6x–0.8x price-to-tangible common equity (P/TCE) is statistically highly significant. The results suggest that the G-SIB designation effect, which positively impacts G-SIBs’ share prices because of funding benefits from IGGs, is dominated by the regulatory G-SIB burden effect, which negatively impacts G-SIBs’ share prices because of lower profitability due to capital surcharges and other regulatory requirements placed on G-SIBs. The findings re-open the debate about whether breaking up G-SIBs would unlock shareholder value and whether G-SIBs are regulated efficiently.

Authors and Affiliations

  • Faculty of Management and Economics, Witten/Herdecke University, Witten, Germany

    Tom Filip Lesche

About the author

Dr. Tom Filip Lesche is a venture capitalist investing into financial technology companies. Previously he was an investment banker advising financial institutions on capital markets and M&A transactions.

Bibliographic Information

  • Book Title: Too-Big-to-Fail in Banking

  • Book Subtitle: Impact of G-SIB Designation and Regulation on Relative Equity Valuations

  • Authors: Tom Filip Lesche

  • Series Title: Finanzwirtschaft, Banken und Bankmanagement I Finance, Banks and Bank Management

  • DOI: https://doi.org/10.1007/978-3-658-34182-4

  • Publisher: Springer Gabler Wiesbaden

  • eBook Packages: Economics and Finance, Economics and Finance (R0)

  • Copyright Information: The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2021

  • Softcover ISBN: 978-3-658-34181-7Published: 29 June 2021

  • eBook ISBN: 978-3-658-34182-4Published: 28 June 2021

  • Series ISSN: 2524-6429

  • Series E-ISSN: 2524-6437

  • Edition Number: 1

  • Number of Pages: XIX, 248

  • Number of Illustrations: 36 b/w illustrations

  • Topics: Capital Markets, Finance, general

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