The Decline of Too Big to Fail

Antje Berndt, Darrell Duffie and Yichao Zhu

American Economic Review, 2025, vol. 115, issue 3, 945-74

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 percent 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."

JEL-codes: G01 G12 G21 G28 G33 H81 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1257/aer.20220846

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