The use of “living wills” in the US to prepare banks for a possible resolution has raised funding costs, implying investors believe large banks are now more likely to be allowed to fail, according to research published by the Federal Reserve Bank of New York.

In the staff working paper, Nicola Cetorelli and James Traina build a measure of banks’ cost of capital using a mix of regulatory filings, financial statements and analyst forecasts. They then observe how costs changed during the staggered