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Too big to fail in Banking: What does it mean?

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  • George Kaufman

Abstract

Interest in TBTF resolutions of insolvent large complex firms has intensified in recent years, particularly in banking. TBTF resolutions protect some in-the-money counterparties of the targeted insolvent firm from losses that would be suffered if the usual bankruptcy resolution regimes used in resolving other firms in the industry were applied. Although special TBTF resolution regimes may reduce the collateral spill-over costs of the failure, the combined direct and indirect costs from such “bailouts” may be large and financed in part or total by taxpayers. Thus, TBTF has become a major public policy issue that has not been resolved in part because of disagreements about definitions and thereby the estimates of the benefits and costs. This paper explores these differences and develops a framework for standardizing the definitions and evaluating the desirability of TBTF resolutions more accurately.

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  • George Kaufman, 2013. "Too big to fail in Banking: What does it mean?," FMG Special Papers sp222, Financial Markets Group.
    • Handle: RePEc:fmg:fmgsps:sp222
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    File URL: http://www.lse.ac.uk/fmg/workingPapers/specialPapers/PDF/SP222.pdf
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    References listed on IDEAS

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    1. Udell, Gregory F., 2010. "Are bank bailouts un-American?," Business Horizons, Elsevier, vol. 53(5), pages 463-467, September.
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    1. Kaufman, George G., 2014. "Too big to fail in banking: What does it mean?," Journal of Financial Stability, Elsevier, vol. 13(C), pages 214-223.

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