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J. Risk Financial Manag. 2019, 12(1), 24; https://doi.org/10.3390/jrfm12010024

Has ‘Too Big To Fail’ Been Solved? A Longitudinal Analysis of Major U.S. Banks

School of Business, University of Redlands, Redlands, CA 92373, USA
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Received: 29 November 2018 / Revised: 16 January 2019 / Accepted: 25 January 2019 / Published: 1 February 2019
(This article belongs to the Special Issue Financial Crises, Macroeconomic Management, and Financial Regulation)
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Abstract

In the wake of the global financial crisis that erupted in 2008, there has been extensive commentary and regulatory focus on the ‘Too Big to Fail’ issue. In this paper, we survey the proposed solutions and regulatory initiatives that have been undertaken. We conduct a longitudinal analysis of major U.S. banks in four discrete time periods: pre-crisis (2005–2007), crisis (2008–2010), post-crisis (2011–2013) and normalcy (2014–2016). We find that risk metrics such as leverage and volatility which spiked during the crisis have reverted to pre-crisis levels and there has been improvement in the proportion of equity capital available to cushion against asset value deterioration. However, banks have grown in size and it does not appear as if their business models have been redirected toward more traditional lending activities. We believe that it is premature to conclude that ‘Too Big to Fail” has been solved, but macro-prudential regulation is now much more effective and, consequently, banks are on a considerably sounder footing since the depths of the crisis. View Full-Text
Keywords: financial crisis; financial regulation; too big to fail; systemic risk financial crisis; financial regulation; too big to fail; systemic risk
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Thosar, S.; Schwandt, B. Has ‘Too Big To Fail’ Been Solved? A Longitudinal Analysis of Major U.S. Banks. J. Risk Financial Manag. 2019, 12, 24.

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