The Decline of Too Big to Fail
Year: 2025
Type: article
Abstract: 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.''
Source: American Economic Review
DOI: 10.1257/aer.20220846
Authors: Antje Berndt, Darrell Duffie, Yichao Zhu
Institutions: Australian National University, Stanford University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4408054562