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

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  • Kaufman, George G.

Abstract

Interest in too big to fail (TBTF) resolutions of insolvent large complex financial firms has intensified in recent years. TBTF resolutions protect some in-the-money counterparties of a targeted insolvent firm from losses that they would suffer 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 often financed in part or in 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.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:finsta:v:13:y:2014:i:c:p:214-223
    DOI: 10.1016/j.jfs.2014.02.004
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    References listed on IDEAS

    as
    1. Udell, Gregory F., 2010. "Are bank bailouts un-American?," Business Horizons, Elsevier, vol. 53(5), pages 463-467, September.
    2. Philip E. Strahan, 2013. "Too Big to Fail: Causes, Consequences, and Policy Responses," Annual Review of Financial Economics, Annual Reviews, vol. 5(1), pages 43-61, November.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Chatterjee, Ujjal K., 2015. "Bank liquidity creation and asset market liquidity," Journal of Financial Stability, Elsevier, vol. 18(C), pages 139-153.
    2. Mark D. Flood & Dror Y. Kenett & Robin L. Lumsdaine & Jonathan K. Simon, 2017. "The Complexity of Bank Holding Companies: A Topological Approach," NBER Working Papers 23755, National Bureau of Economic Research, Inc.
    3. repec:eee:jfinin:v:39:y:2019:i:c:p:4-18 is not listed on IDEAS
    4. repec:eee:pacfin:v:50:y:2018:i:c:p:1-15 is not listed on IDEAS
    5. Delis, Manthos D. & Karavias, Yiannis, 2015. "Optimal versus realized bank credit risk and monetary policy," Journal of Financial Stability, Elsevier, vol. 16(C), pages 13-30.
    6. Robert C. Merton & Richard T. Thakor, 2015. "Customers and Investors: A Framework for Understanding Financial Institutions," NBER Working Papers 21258, National Bureau of Economic Research, Inc.
    7. Eichler, Stefan & Sobański, Karol, 2016. "National politics and bank default risk in the eurozone," Journal of Financial Stability, Elsevier, vol. 26(C), pages 247-256.
    8. Gaganis, Chrysovalantis & Hasan, Iftekhar & Pasiouras, Fotios, 2016. "Regulations, institutions and income smoothing by managing technical reserves: International evidence from the insurance industry," Omega, Elsevier, vol. 59(PA), pages 113-129.
    9. Williams, Barry, 2014. "Bank risk and national governance in Asia," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 10-26.
    10. Matías Cabrera & Gerald P. Dwyer & María J. Nieto, 2018. "The G-20 regulatory agenda and bank risk," Working Papers 1829, Banco de España;Working Papers Homepage.
    11. Williams, Barry, 2016. "The impact of non-interest income on bank risk in Australia," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 16-37.
    12. Franklin Allen & Itay Goldstein & Julapa Jagtiani & William W. Lang, 2016. "Enhancing Prudential Standards in Financial Regulations," Journal of Financial Services Research, Springer;Western Finance Association, vol. 49(2), pages 133-149, June.
    13. Mark D. Flood & Dror Y. Kenett & Robin L. Lumsdaine & Jonathan J. Simon, 2017. "The Complexity of Bank Holding Companies: A New Measurement Approach," Working Papers 17-03, Office of Financial Research, US Department of the Treasury.
    14. repec:bof:bofrdp:urn:nbn:fi:bof-201508181354 is not listed on IDEAS
    15. J. Atsu Amegashie, 2018. "The Political Economyof Too-Big-To-Fail," CESifo Working Paper Series 7403, CESifo Group Munich.
    16. Colleen Baker & Christine Cummings & Julapa Jagtiani, 2017. "The impacts of financial regulations: solvency and liquidity in the post-crisis period," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 25(3), pages 253-270, July.
    17. repec:eee:finsta:v:37:y:2018:i:c:p:1-10 is not listed on IDEAS
    18. Espenlaub, Susanne & Goyal, Abhinav & Mohamed, Abdulkadir, 2016. "Impact of legal institutions on IPO survival: A global perspective," Journal of Financial Stability, Elsevier, vol. 25(C), pages 98-112.
    19. repec:eee:ememar:v:38:y:2019:i:c:p:310-325 is not listed on IDEAS
    20. Allen, Linda & Tang, Yi, 2016. "What’s the contingency? A proposal for bank contingent capital triggered by systemic risk," Journal of Financial Stability, Elsevier, vol. 26(C), pages 1-14.
    21. Silva, Walmir & Kimura, Herbert & Sobreiro, Vinicius Amorim, 2017. "An analysis of the literature on systemic financial risk: A survey," Journal of Financial Stability, Elsevier, vol. 28(C), pages 91-114.
    22. repec:eee:finsta:v:39:y:2018:i:c:p:66-78 is not listed on IDEAS

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