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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% 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.”
