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BANKING AND PUBLIC POLICY: TOO BIG TO FAIL
Author(s) -
Kaufman George G.
Publication year - 2015
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12169
Subject(s) - too big to fail , creditor , collateral damage , collateral , insolvency , economics , financial system , bank run , macroprudential regulation , business , finance , financial crisis , systemic risk , debt , market liquidity , macroeconomics , criminology , sociology
“Too big to fail” (TBTF) is a major policy issue in banking. Large bank failures may impose losses on depositors and creditors that may impose large collateral damage on other financial institutions and beyond. Regulators are frequently incentivized either to delay recognizing a bank's insolvency or fail the bank but protect its creditors against loss. This paper argues that, while there is wide agreement that the cost of protecting creditors in the resolution of large financial institutions is excessively high, it is difficult to prevent this practice for a number of reasons. Until these disagreements are settled, TBTF will survive . (JEL G01, G18, G28 )