Bailout Barometer™
Richmond Fed researchers estimate that 60 percent of the liabilities of the financial system are subject to explicit or implicit protection from loss by the federal government. This protection may encourage risk taking, making financial crises and bailouts more likely.
History of the Bailout Barometer™
The Richmond Fed has been studying the risks created by government guarantees of financial institution liabilities since at least the late 1980s, and started estimating the size of this "federal financial safety net" in 1999. These estimates have been published in various forms since 2002.
According to the latest estimate, the safety net covered 60 percent of all financial firm liabilities at the end of 2016. There were two policy shifts that affected the estimate. First, as a result of the SEC's implementation of significant new rules for Money Market Funds (MMFs) in 2016, the estimate no longer includes MMF balances (see Bailout Barometer FAQs for an explanation). Second, two of the four systemically important financial institutions (SIFI) lost their SIFI designations.
2015 Estimate
As of 2015, the safety net included 62 percent of all financial firm liabilities. There were no major policy shifts that affected the estimates between 2014 and 2015.
2014 Estimate
As of 2014, the safety net included 61 percent of all financial firm liabilities. Although this estimate did not change significantly compared to 2013, a new systemically important financial institution (SIFI) was designated in 2014.
2013 Estimate
As of 2013, the safety net included 60 percent of all financial firm liabilities. There were no major policy shifts that affected the estimates between 2011 and 2013.
2011 Estimate
Richmond Fed researchers Liz Marshall, Sabrina Pellerin, and John Walter estimated that the safety net included as much as 61 percent of all financial firm liabilities in 2011. This was roughly the same as in 2009 despite the fact that Dodd-Frank produced far-reaching changes in the financial sector and sought to end government bailouts. While the total estimate remained roughly the same, the composition of implicit and explicit guarantees changed significantly due to the treatment of Fannie Mae and Freddie Mac (see Bailout Barometer FAQs for an explanation).
2009 Estimate
As of 2009, the size of the safety net had grown to 65 percent from 45 percent in 1999. This 2009 figure is a revision of estimates originally produced by Nadezhda Malysheva and John Walter and was made to align the estimation method used in 2009 with methods used in other years. The authors' estimates take into account the government's response to the financial crisis (e.g. assistance to specific firms such as AIG, as well as broader support efforts such as the Treasury's Capital Assistance Program and Capital Purchase Program).
1999 Estimate
Richmond Fed economists John Walter and John Weinberg first estimated the size of the safety net as it stood at the end of 1999. They found that approximately 45 percent of all financial firm liabilities were protected.
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