For globally systemically important banks (G-SIBs) with
U.S. headquarters, we find large post-Lehman reductions
in market-implied probabilities of government bailout, along
with big increases in debt financing costs for these banks
after controlling for insolvency risk. The data are consistent
with significant effectiveness for the official sector’s post-
Lehman G-SIB failure-resolution intentions, laws, and rules.
G-SIB creditors now appear to expect to suffer much larger
losses in the event that a G-SIB approaches insolvency. In
this sense, we estimate a major decline of « too big to fail. »