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Too Big to Fail: A Misguided Policy in Times of Financial Turmoil

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  • Clyde Goodlet

    (Bank of Canada (former))

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    Abstract

    The bailouts carried out by governments for large banks and other financial entities in the recent financial turbulence are often characterized as a Too-Big-To-Fail (TBTF) policy. Proponents of such a policy argue that preventing the failure of large banks (and possibly other financial and non-financial entities) is necessary to limit the impact that such a failure might have on other institutions or on the real economy. Opponents argue that while such a policy might seem attractive in the short run, even given the enormous financial cost to government associated with its intervention, the long-run costs are even larger and are almost always ignored, making TBTF a poor policy choice.

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    Bibliographic Info

    Article provided by C.D. Howe Institute in its journal C.D. Howe Institute Commentary.

    Volume (Year): (2010)
    Issue (Month): 311 (October)
    Pages:

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    Handle: RePEc:cdh:commen:311

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    Related research

    Keywords: Financial Services; too-big-to-fail (TBTF);

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