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December 16, 2013

Banks Live Up to Too-Big-to-Fail Name

The largest U.S. financial institutions may still be considered by many to be too big to fail. But in credit markets, far less thought is given anymore by investors to the risk of them actually failing.

For the first time in years, the cost of insuring $10 million of debt against default at all six of the biggest U.S. banks has fallen to about $100,000 or less annually, according to data from Markit. In the wake of the financial crisis, credit-default swaps for some of the banks were at various points priced as much as four to six times higher.

The likes of Wells Fargo and J.P. Morgan Chase have been below the $100,000 level more than a year. Bank of America  and Citigroup fell below it this year. Meanwhile,Morgan Stanley  recently crossed below this threshold and Goldman Sachs last week dipped under it during intraday trading.

The declines reflect buoyant markets, a stronger economy and improving fortunes of individual firms. The latter has played a particularly big role at Morgan Stanley, whose cost of insurance has fallen furthest the past year: In December 2012, it cost slightly more than $200,000 to insure $10 million of its debt, Markit data show.”

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Read full Wall Street Journal article here

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