Resolving “Too Big to Fail”

Nicola Cetorelli and James Traina ()

Journal of Financial Services Research, 2021, vol. 60, issue 1, No 1, 23 pages

Abstract: Abstract Using a synthetic control research design, we find that living will regulation increases a bank’s annual cost of capital by 22 bps, or 10% of total funding costs. This effect is stronger in banks measured as systemically important before the regulation’s announcement. We interpret our findings as a reduction in Too-Big-to-Fail subsidies. The effect size is large: multiplying our bank-specific point estimates by funding size implies a subsidy reduction of $42B annually. The impact on equity drives the main effect. The impact on deposits is statistically indistinguishable from zero, passing the placebo test for our empirical strategy.

Keywords: Cost of capital; Time consistency; Too big to fail; Resolution plans; Dodd-Frank (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10693-021-00352-1 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Resolving “Too Big to Fail” (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jfsres:v:60:y:2021:i:1:d:10.1007_s10693-021-00352-1

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10693

DOI: 10.1007/s10693-021-00352-1

Access Statistics for this article

Journal of Financial Services Research is currently edited by Haluk Unal

More articles in Journal of Financial Services Research from Springer, Western Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().