The “Too Big to Fail” Subsidy in Canada : Some Estimates

Summary: “Concerns over widespread contagion (to other financial institutions and to the broader economy) during the 2008-2009 global financial crisis left some countries with no credible alternative but to provide public funds and guarantees to financial institutions considered systemic, or “too big to fail” (TBTF). These institutions are broadly defined as those of such size, market importance and interconnectedness that their distress or failure would cause significant dislocation in the financial system and have adverse economic consequences. This paper complements work done in other jurisdictions and contributes to the TBTF debate by developing an empirical framework to assess implicit public support for the largest domestic financial institutions in Canada. So far, analyses in the Canadian context have been limited, and this work is novel given the adopted approaches. Furthermore, earlier studies stop short of the most recent period, not fully assessing the post-implementation effects of reforms targeted at enhancing resolution regimes'--Non-technical summary, p. 2.