American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Decline of Too Big to Fail
American Economic Review
vol. 115,
no. 3, March 2025
(pp. 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."Citation
Berndt, Antje, Darrell Duffie, and Yichao Zhu. 2025. "The Decline of Too Big to Fail." American Economic Review 115 (3): 945–74. DOI: 10.1257/aer.20220846Additional Materials
JEL Classification
- G01 Financial Crises
- G12 Asset Pricing; Trading Volume; Bond Interest Rates
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- G33 Bankruptcy; Liquidation
- H81 Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts