'Too Systemically Important To Fail’ in Banking – Evidence from Bank Mergers and Acquisitions

In this paper, we examine the systemic risk implications of banking institutions that are considered �Too-systemically-important- to-fail� (TSITF). We exploit a sample of bank mergers and acquisitions (M&As) in nine EU economies between 1997 and 2007 to capture safety net subsidy effects and evaluate their ramifications for systemic risk. We find that safety net benefits derived from M&A activity have a significantly positive association with rescue probability, suggesting moral hazard in banking systems. We, however, find no evidence that gaining safety net subsidies leads to TSITF bank�s increased interdependency over peer bank