Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/210711
Authors: 
Cetorelli, Nicola
Traina, James
Year of Publication: 
2018
Series/Report no.: 
Staff Report 859
Abstract: 
Using a synthetic control research design, we find that "living will" regulation increases a bank's annual cost of capital by 22 basis points, or 10 percent of total funding costs. This effect is stronger in banks that were measured as systemically important before the regulation's announcement. We interpret our findings as a reduction in "too big to fail" subsidies. The size of this effect is large: a back-of-the-envelope calculation implies a subsidy reduction of $42 billion annually. The impact on equity costs drives the main effect. The impact on deposit costs is statistically indistinguishable from zero, representing a good placebo test for our empirical strategy.
Subjects: 
cost of capital
time consistency
too big to fail
resolution plans
Dodd-Frank
JEL: 
G21
G28
Document Type: 
Working Paper

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