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A Perplexed Economist Confronts 'too Big to Fail'


  • F. M. Scherer


This paper examines premises and data underlying the assertion that some financial institutions in the U.S. economy were "too big to fail" and hence warranted government bailout. It traces the merger histories enhancing the dominance of six leading firms in the U. S. banking industry and he sharp increases in the concentration of financial institution assets accompanying that merger wave. Financial institution profits are found to have soared in tandem with rising concentration. The paper advances hypotheses why these phenomena might be related and surveys relevant empirical literature on the relationships between market concentration, interest rates received and charged by banks, and economies of scale in banking.

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  • F. M. Scherer, 2010. "A Perplexed Economist Confronts 'too Big to Fail'," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 7(2), pages 267-284, December.
  • Handle: RePEc:liu:liucej:v:7:y:2010:i:2:p:267-284

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    References listed on IDEAS

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    Cited by:

    1. Xavier Vives, 2011. "Competition policy in banking," Oxford Review of Economic Policy, Oxford University Press, vol. 27(3), pages 479-497.
    2. Lee, Li Way, 2013. "Merger wave in a small world: Two views," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 43(C), pages 68-71.
    3. Günther, Susanne, 2013. "Eine ökonomische Analyse der Systemrelevanz von Banken," Arbeitspapiere 139, University of Münster, Institute for Cooperatives.
    4. Giuseppe Mastromatteo & Giuseppe Mastromatteo, 2016. "Minsky at Basel: A Global Cap to Build an Effective Postcrisis Banking Supervision Framework," Economics Working Paper Archive wp_875, Levy Economics Institute.

    More about this item


    systemic risk; market concentration; mergers; scale economies;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • L8 - Industrial Organization - - Industry Studies: Services


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