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Did the Dodd-Frank Act End ‘Too Big to Fail’?

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Abstract

One goal of the Dodd-Frank Act of 2010 was to end ?too big to fail.? Toward that goal, the Act required systemically important financial institutions to submit detailed plans for an orderly resolution (?living wills?) and authorized the FDIC to create an alternative resolution procedure. In response, the FDIC has developed a ?single point of entry? (SPOE) strategy, under which healthy parent companies bear the losses of their failing subsidiaries. Since SPOE makes the parent company responsible for subsidiaries? losses, we would expect that parents have become riskier, relative to their subsidiaries, since the announcement of the SPOE strategy in December 2013. Do bond raters and investors share this view?

Suggested Citation

  • Gara M. Afonso & Michael Blank & João A. C. Santos, 2018. "Did the Dodd-Frank Act End ‘Too Big to Fail’?," Liberty Street Economics 20180305, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87245
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    Cited by:

    1. Richard K. Crump & João A. C. Santos, 2018. "Review of New York Fed studies on the effects of post-crisis banking reforms," Economic Policy Review, Federal Reserve Bank of New York, issue 24-2, pages 71-90.

    More about this item

    Keywords

    Too-big-to-fail; Dodd-Frank; Single point of entry;
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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