Academic Luncheon Keynote by Professor Darrell Duffie
The Decline of Too Big to Fail
(Based on joint work with Antje Berndt and Yichao Zhu)
Crisis revelations of the costs of "too-big-to-fail'' have lead to new legal methods, globally, for resolving the insolvencies of systemically important banks. Rather than bailing out these firms with government capital injections, insolvency losses are now supposed to be allocated to wholesale creditors. Many commenters believe, however, that these reforms have not significantly reduced the likelihood of government bailouts of these firms. We estimate post-crisis declines in market-implied bailout probabilities for US globally-systemically important banks (G-SIBs), the associated increases in G-SIB bond yields, and the declines in G-SIB equity market values stemming from reductions in debt financing subsidies associated with bailout expectations. We show that G-SIB balance sheet data and the market prices of debt and equity imply a dramatic and persistent post-crisis reduction in market-implied probabilities of government bailouts of U.S. G-SIB holding companies.
Dean Witter Distinguished Professor of Finance at the Graduate School of Business, and professor by courtesy, Department of Economics, Stanford University and Senior Fellow of ABFER
"The Decline of Too Big to Fail"
Program is subjected to change. Updated on 26 March 2019.
Professor Darrell Duffie
Dean Witter Distinguished Professor of Finance at the Graduate School of Business, and professor by courtesy, Department of Economics, Stanford University
Professor Darrell Duffie is the Dean Witter Distinguished Professor of Finance at Stanford University's Graduate School of Business. He is also Professor (by courtesy) in the Department of Economics, Senior Fellow of the Stanford Institute for Economic Policy Institute, and Senior Fellow (by courtesy) of the Hoover Institution at Stanford University.
Duffie is a fellow of the Econometric Society, a research fellow of the National Bureau of Economic Research, and a fellow of the American Academy of Arts and Sciences and a Senior Fellow of Asian Bureau of Finance and Economic Research.
He was the 2009 president of the American Finance Association. From October 2008 to April 2018 Duffie was a member of the board of directors of Moody’s Corporation. From 2013 to 2017 he chaired the Financial Stability Board’s Market Participants Group on Reference Rate Reform.
Duffie’s research focuses on the design and regulation of capital markets. His research is published in Econometrica, Journal of Political Economy, and Journal of Finance, among other journals. His books include How Big Banks Fail (Princeton University Press, 2010), Measuring Corporate Default Risk (Oxford University Press, 2011), and Dark Markets (Princeton University Press, 2012).