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Banking And Public Policy: Too Big To Fail

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  • George G. Kaufman

Abstract

“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)

Suggested Citation

  • George G. Kaufman, 2015. "Banking And Public Policy: Too Big To Fail," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 1-8, January.
    • Handle: RePEc:bla:ecinqu:v:53:y:2015:i:1:p:1-8
    DOI: 10.1111/ecin.12169
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    References listed on IDEAS

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    Cited by:

    1. Isabelle Distinguin & Laetitia Lepetit & Frank Strobel & Phan Huy Hieu Tran, 2023. "Bondholder representatives on bank boards: A device for market discipline," Economic Inquiry, Western Economic Association International, vol. 61(3), pages 738-765, July.
    2. Dinger, Valeriya & te Kaat, Daniel Marcel, 2020. "Cross-border capital flows and bank risk-taking," Journal of Banking & Finance, Elsevier, vol. 117(C).
    3. Bednarek, Peter & Dinger, Valeriya & te Kaat, Daniel Marcel & von Westernhagen, Natalja, 2020. "Central bank funding and credit risk-taking," Discussion Papers 36/2020, Deutsche Bundesbank.
    4. Bednarek, Peter & Dinger, Valeriya & Kaat, Daniel Marcel te & Westernhagen, Natalja von, 2021. "To whom do banks channel central bank funds?," Journal of Banking & Finance, Elsevier, vol. 128(C).

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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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