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Too big to fail : origins, consequences, and outlook

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  • Robert L. Hetzel
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    Abstract

    The policy of too big to fail arose in part from pressures created by the lack of satisfactory bankruptcy arrangements for banks. It prevented market forces from closing banks and protected all uninsured depositors of large banks from loss in the event of failure. The consequent risk-taking behavior of banks produced the systemic instability in banking that the policy was designed to prevent. It is debatable how the Deposit Insurance Reform Act of 1991 will affect the timing of bank closures, the risk-taking behavior of banks, and the contraction of the banking industry.

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    File URL: http://www.richmondfed.org/publications/research/economic_review/1991/pdf/er770601.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Richmond in its journal Economic Review.

    Volume (Year): (1991)
    Issue (Month): Nov ()
    Pages: 3-15

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    Handle: RePEc:fip:fedrer:y:1991:i:nov:p:3-15:n:v.77no.6

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    Related research

    Keywords: Bank failures;

    References

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    1. David L. Mengle & John R. Walter, 1991. "How market value accounting would affect banks," Proceedings, Federal Reserve Bank of Chicago, pages 511-533.
    2. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
    3. Rolnick, Arthur J. & Weber, Warren E., 1984. "The causes of free bank failures : A detailed examination," Journal of Monetary Economics, Elsevier, vol. 14(3), pages 267-291, November.
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    Cited by:
    1. Mark M. Spiegel & Nobuyoshi Yamori, 2000. "The evolution of "too-big-to-fail" policy in Japan: evidence from market equity values," Pacific Basin Working Paper Series 00-01, Federal Reserve Bank of San Francisco.
    2. Stern, Gary H., 1998. "Government safety nets, banking system stability, and economic development," Journal of Asian Economics, Elsevier, vol. 9(1), pages 21-29.
    3. Huberto M. Ennis & H.S. Malek, 2005. "Bank risk of failure and the too-big-to-fail policy," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 21-44.
    4. Hanley, Brian P., 2012. "Release of the Kraken: A novel money multiplier equation's debut in 21st century banking," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(3), pages 1-25.
    5. Walker F. Todd, 1992. "FDICIA's discount window provisions," Economic Commentary, Federal Reserve Bank of Cleveland, issue Dec 15.

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