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The Decline of Too Big to Fail

Author

Listed:
  • Antje Berndt
  • Darrell Duffie
  • Yichao Zhu

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."

Suggested Citation

  • Antje Berndt & Darrell Duffie & Yichao Zhu, 2025. "The Decline of Too Big to Fail," American Economic Review, American Economic Association, vol. 115(3), pages 945-974, March.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:3:p:945-74
    DOI: 10.1257/aer.20220846
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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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