The Decline of Too Big to Fail

84 Pages Posted: 19 Dec 2019 Last revised: 27 Jun 2022

See all articles by Antje Berndt

Antje Berndt

Australian National University, College of Business and Economics

Darrell Duffie

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER); Canadian Derivatives Institute

Yichao Zhu

Australian National University (ANU), Research school of Finance, Actuarial Studies and Applied Statistics

Date Written: June 24, 2022

Abstract

For globally systemically important banks (GSIBs) with US head- quarters, we find significant reductions in market-implied prob- abilities 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. The data are consistent with measurable effectiveness for the official sector’s post-GFC GSIB failure-resolution intentions. GSIB creditors now appear to expect much larger losses in the event that a GSIB approaches insolvency. In this sense, we estimate a major decline of "too big to fail."

Keywords: too big to fail, systemically important banks, government bailouts

JEL Classification: G12, G13, G21, G28

Suggested Citation

Berndt, Antje and Duffie, James Darrell and Zhu, Yichao, The Decline of Too Big to Fail (June 24, 2022). Available at SSRN: https://ssrn.com/abstract=3497897 or http://dx.doi.org/10.2139/ssrn.3497897

Antje Berndt (Contact Author)

Australian National University, College of Business and Economics ( email )

Australian National University
Bldg 26C
Canberra, ACT 2601
Australia

HOME PAGE: http://https://cbe.anu.edu.au/about/staff-directory/professor-antje-berndt

James Darrell Duffie

Stanford University - Graduate School of Business ( email )

655 Knight Way
Knight Management Center
Stanford, CA 94305-7298
United States
650-723-1976 (Phone)
650-725-8916 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Canadian Derivatives Institute ( email )

3000, chemin de la Côte-Sainte-Catherine
Montréal, Québec H3T 2A7
Canada

Yichao Zhu

Australian National University (ANU), Research school of Finance, Actuarial Studies and Applied Statistics ( email )

Kingsley Street
Acton
Australia

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