Do Bond Spreads Show Evidence of Too Big to Fail Effects?

Evidence from 2009-2013 among US Bank Holding Companies

Analysis of so-called “too big to fail” (TBTF) perceptions and their effects is not new, but this line of research has come to the forefront due to its importance to continuing debates on financial regulatory reform. While there is near-universal agreement that successful regulatory reform must address the risks and social costs posed by the problem of TBTF, there are wide differences of opinion about whether the legal and regulatory changes put in place since the crisis have in fact substantially addressed TBTF concerns.

This working paper seeks to inform this debate by assessing evidence of funding cost differentials from 2009-2013 among senior unsecured bonds of US Bank Holding Companies (BHCs).

The working paper describes one result from a broader effort to review and update the empirical evidence of TBTF among US banking institutions. Our aim is to build on the most promising research on funding costs to develop a robust view of TBTF perceptions using the latest available information.

This study was sponsored by The Clearing House Association. All findings and recommendations are solely our own.

Do Bond Spreads Show Evidence of Too Big to Fail Effects?