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Does the Too Big to Fail Doctrine Have a Future?

Author

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  • Irina Petkova Kazandjieva-Yordanova

    (University of National and World Economy, Sofia, Bulgaria)

Abstract

The global financial crisis proved that the Too Big to Fail /TBTF/ doctrine is an issue which needs a solution. Currently, the solution is found in a number of regulatory measures undertaken on EU level directed to the systemically important banks. These measures in the field of supervision, resolution framework, protection of depositors and bank structures are discussed in this paper. The paper is structured in five sections - review of the TBTF issue, the enhanced supervision on systemically important banks in the euro area, the implementation of resolution mechanisms for the banks, the implementation of minimum required eligible liabilities /MREL/ and total loss absorbing capacity /TLAC/ for the global systemically important banks, the changes in the financial safety net, mainly the creation of the European Deposit Insurance Scheme, and the initiative for the banking structural reform. The reflection of each measure on the TBTF doctrine is analyzed in each section. The paper gives evidence that these regulatory initiatives undertaken on the EU level reduce the probability of bail out of systemically important banks due to the stronger intensity of banking supervision, increased loss absorbing capacity of the systemically important banks, decreased complexity in their structure and the creation of a stronger deposit insurance scheme on European level. These regulatory measures contribute to reducing the systemic risk and moral hazard which are associated with the systemically important banks and more options are provided for the policy makers except the bail-out of systemically important banks with public funds.

Suggested Citation

  • Irina Petkova Kazandjieva-Yordanova, 2017. "Does the Too Big to Fail Doctrine Have a Future?," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 1, pages 51-78, March.
    • Handle: RePEc:nwe:eajour:y:2017:i:1:p:51-78
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    References listed on IDEAS

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    1. Rose, Andrew & Wieladek, Tomasz, 2012. "Too big to fail: some empirical evidence on the causes and consequences of public banking interventions in the United Kingdom," Bank of England working papers 460, Bank of England.
    2. Barth, James R. & Prabha, Apanard & Swagel, Phillip, 2012. "Just How Big Is the Too Big to Fail Problem?," Working Papers 12-06, University of Pennsylvania, Wharton School, Weiss Center.
    3. Rose, Andrew K. & Wieladek, Tomasz, 2012. "Too big to fail: Some empirical evidence on the causes and consequences of public banking interventions in the UK," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 2038-2051.
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    Cited by:

    1. Miroslav Nedelchev, 2018. "Extension Of The Scope Of Banking Supervision," Economics and Management, Faculty of Economics, SOUTH-WEST UNIVERSITY "NEOFIT RILSKI", BLAGOEVGRAD, vol. 14(1), pages 136-147.
    2. Miroslav Nedelchev, 2018. "Reforms Of Banking Supervision In Bulgaria," Economics and Management, Faculty of Economics, SOUTH-WEST UNIVERSITY "NEOFIT RILSKI", BLAGOEVGRAD, vol. 14(1), pages 125-134.

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    More about this item

    Keywords

    resolution; TBTF doctrine; systemically important banks; deposit insurance schemes; bail-out;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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