Did Too-Big-To-Fail Reforms Work Globally?

Asani Sarkar

No 20200930, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Once a bank grows beyond a certain size or becomes too complex and interconnected, investors often perceive that it is “too big to fail” (TBTF), meaning that if the bank were to fail, the government would likely bail it out. Following the global financial crisis (GFC) of 2008, the G20 countries agreed on a set of reforms to eliminate the perception of TBTF, as part of a broader package to enhance financial stability. In June 2020, the Financial Stability Board (FSB), a sixty-eight-member international advisory body set up in 2009, published the results of a year-long evaluation of the effectiveness of TBTF reforms. In this post, we discuss the main conclusions of the report—in particular, the finding that implicit funding subsidies to global banks have decreased since the implementation of reforms but remain at levels comparable to the pre-crisis period.

Keywords: too big to fail; global banks; systemic risk; Financial Stability Board (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2020-09-30
New Economics Papers: this item is included in nep-ban, nep-cba, nep-isf and nep-rmg
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