The Decline of Too Big to Fail
119 Pages Posted: 19 Dec 2019 Last revised: 23 Aug 2023
Date Written: August 22, 2023
For globally systemically important banks (GSIBs) with US headquarters, we find significant reductions in market-implied probabilities of government bailout after the Global Financial Crisis (GFC), along with roughly 170% higher wholesale debt financing costs for these banks after controlling for insolvency risk. Since the GFC, bank creditors appear to expect much larger losses in the event that a GSIB approaches insolvency. In this sense, we estimate a decline of ``too big to fail.''
Keywords: too big to fail, systemically important banks, government bailouts
JEL Classification: G12, G13, G21, G28
Suggested Citation: Suggested Citation