Too Big to Fail or Too Big to Save? : evidence from European bank equity prices from 1987 – 2012

Abstract

In this thesis the determinants of market-to-book ratio on European banks from 1987 - 2012 is analyzed with focus on determining whether European banks are under a too-big-to-fai protection, or if they are too big to save. The thesis argues that European banks on average trades with a relative premium due to too-big-to-fail protection, and that the largest and most systemic banks are priced lower than its less systemic peers, possibly through being too big to save. This tendency is strengthened in the years after 2008. These results are found by implementing the empirical approach introduced by Demirgüç-Kunt and Huizinga (2012) on my dataset of bank- and country-specific variables on European banks from 1987 - 2012