The End of Too-Big-to-Fail? Evidence from Senior Bank Bond Yield Spreads Around the Dodd-Frank Act
University of Akron - College of Business Administration - Department of Finance
Ken B. Cyree
University of Mississippi - School of Business Administration
June 23, 2012
We examine the secondary market transactions of senior bonds issued by banks for the periods prior to and after passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) in 2010. We find the 136 basis points discount on yield spreads because of the too-big-to-fail (TBTF) effects is removed after the DFA. Markets charge a premium of 33 basis points for the TBTF banks after the DFA. The premium increases further after the rating criteria changes by credit rating agencies. We find the default risk sensitivity of several variables improves and changes in risk are perceptible in the changes in yield spreads.
Number of Pages in PDF File: 48
Keywords: too big to fail, Dodd – Frank Act, Yield spread, Default risk
JEL Classification: G01, G20, G21, G28
Date posted: June 24, 2012 ; Last revised: June 26, 2012
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