The Decline of Too Big to Fail

Antje Berndt; Darrell Duffie; Yichao Zhu

doi:10.1257/aer.20220846

American Economic Review Vol. 115 No. 3 2025

The Decline of Too Big to Fail

Antje Berndt¹; Darrell Duffie²; Yichao Zhu¹

¹ College of Business and Economics, Australian National University (email: ) · ² Graduate School of Business, Stanford University (email: )

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.” (G01, G12, G21, G28, G33, H81)

DOI: 10.1257/aer.20220846
Volume: 115
Issue: 3
Pages: 945-974
Language: en
Sources: bibtex:phds-export.bib crossref openalex

The Decline of Too Big to Fail

Abstract

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