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Is bailout insurance and tail risk priced in bank equities?

Del Viva, Luca; Kasanen, Eero; Saunders, Anthony; Trigeorgis, Lenos


Luca Del Viva

Eero Kasanen

Anthony Saunders


We present a pricing model of bank bailout insurance guarantees against tail risk and empirical evidence that provides a rational explanation why big bank equities “underperform” relative to small banks during normal times while they “overperform” during crises. A new measure accounting for left-tail risk protection against losses conditional on a crisis explains the “underperformance” of large banks during normal periods. Over the long-term spanning several economic cycles, bank assets are fairly priced regardless of size. Our empirical evidence supports our model’s predicted pattern of excess bank return reversals across economic cycles following Too-Big-To-Fail (TBTF) bailout policy in 1984.


Del Viva, L., Kasanen, E., Saunders, A., & Trigeorgis, L. (2021). Is bailout insurance and tail risk priced in bank equities?. Journal of Financial Stability, 55, Article 100909.

Journal Article Type Article
Acceptance Date Jun 17, 2021
Online Publication Date Jun 23, 2021
Publication Date 2021-08
Deposit Date Feb 14, 2023
Journal Journal of Financial Stability
Print ISSN 1572-3089
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 55
Article Number 100909
Public URL