The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Fri, 26 Jun 2026 15:11:10 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.8 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png How Much Did Banks Pay to Become Too-Big-To-Fail and to Become Systematically Important? – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 How Much Did Banks Pay to Become Too-Big-To-Fail and to Become Systematically Important? https://corpgov.law.harvard.edu/2010/04/09/how-much-did-banks-pay-to-become-too-big-to-fail-and-to-become-systematically-important/?utm_source=rss&utm_medium=rss&utm_campaign=how-much-did-banks-pay-to-become-too-big-to-fail-and-to-become-systematically-important https://corpgov.law.harvard.edu/2010/04/09/how-much-did-banks-pay-to-become-too-big-to-fail-and-to-become-systematically-important/#comments Fri, 09 Apr 2010 13:08:24 +0000 http://blogs.law.harvard.edu/corpgov/?p=8247?d=20150106104537EST Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday, April 9, 2010
Editor's Note:

This post comes to us from Julapa Jagtiani, Special Advisor at the Federal Reserve Bank of Philadelphia, and Elijah Brewer, Professor of Finance at DePaul University.

In the paper, How Much Did Banks Pay to Become Too-Big-To-Fail and to Become Systematically Important? which was recently made publicly available on SSRN, we estimate the value of the too-big-to-fail (TBTF) subsidy. The special treatment provided to too-big-to-fail institutions during the financial crisis that started in mid-2007 has raised concerns among analysts and legislators about the consequences of this for the overall stability and riskiness of the financial system. Stern (2009) testified before the Committee on Banking, Housing, and Urban Affairs that “TBTF arises when the uninsured creditors of systemically important financial institutions expect government protection from loss … If creditors continue to expect special protection, the moral hazard of government protection will continue. That is, creditors will continue to underprice the risk-taking of these financial institutions, overfund them, and fail to provide effective market discipline. Facing prices that are too low, systemically important firms will take on too much risk. Excessive risk-taking squanders valuable economic resources and, in the extreme, leads to financial crises that impose substantial losses on taxpayers.”

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