The End of Too-Big-to-Fail? Evidence from Senior Bank Bond Yield Spreads Around the Dodd-Frank Act

48 Pages Posted: 24 Jun 2012 Last revised: 26 Jun 2012

Bhanu Balasubramanian

University of Akron - College of Business Administration - Department of Finance

Ken B. Cyree

University of Mississippi - School of Business Administration

Date Written: June 23, 2012

Abstract

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.

Keywords: too big to fail, Dodd – Frank Act, Yield spread, Default risk

JEL Classification: G01, G20, G21, G28

Suggested Citation

Balasubramanian, Bhanu and Cyree, Ken B., The End of Too-Big-to-Fail? Evidence from Senior Bank Bond Yield Spreads Around the Dodd-Frank Act (June 23, 2012). Available at SSRN: https://ssrn.com/abstract=2089750 or http://dx.doi.org/10.2139/ssrn.2089750

Bhanu Balasubramanian (Contact Author)

University of Akron - College of Business Administration - Department of Finance ( email )

259 S. Broadway
Akron, OH 44325
United States

Ken B. Cyree

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

Paper statistics

Downloads
156
Rank
151,802
Abstract Views
1,389