Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60713
Authors: 
Morgan, Donald P.
Stiroh, Kevin J.
Year of Publication: 
2005
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 220
Abstract: 
The naming of eleven banks as “too big to fail (TBTF)” in 1984 led bond raters to raise their ratings on new bond issues of TBTF banks about a notch relative to those of other, unnamed banks. The relationship between bond spreads and ratings for the TBTF banks tended to flatten after that event, suggesting that investors were even more optimistic than raters about the probability of support for those banks. The spread-rating relationship in the 1990s remained flatter for TBTF banks (or their descendants) even after the passage of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), suggesting that investors still see those banks as TBTF. Until investors are disabused of such beliefs, investor discipline of big banks will be less than complete.
Subjects: 
market discipline, too big to fail
JEL: 
G2
G3
N2
Document Type: 
Working Paper

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