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Just how big is the too-big-to-fail problem?

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  • James R Barth
  • Apanard (Penny) Prabha
  • Phillip Swagel

Abstract

The idea of banks too big to fail (TBTF) is not new. Indeed, it has been three decades since the first TBTF bailout owing to concerns about serious and widespread financial repercussions. Since then, of course, big banks have grown much bigger and have become increasingly complex, both in the United States and elsewhere. In this article, we put the issue of TBTF in US historical and quantitative perspective, and assess the potential impacts of recent regulatory changes. The developments relating to the TBTF problem based on a global perspective are also examined. The measures taken since the financial crisis of 2007–2009 – including the Basel III regulatory reforms, domestic regulations such as the Dodd–Frank Act and the designation of global systemically important banks – have distinct purposes but also complement one another, to the extent that they are successful. Our analysis points out that despite the recent regulatory changes the future of TBTF remains unclear, but it is likely that it will be different from the past.

Suggested Citation

  • James R Barth & Apanard (Penny) Prabha & Phillip Swagel, 2012. "Just how big is the too-big-to-fail problem?," Journal of Banking Regulation, Palgrave Macmillan, vol. 13(4), pages 265-299, November.
    • Handle: RePEc:pal:jbkreg:v:13:y:2012:i:4:p:265-299
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    Citations

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    Cited by:

    1. Leo Haan & Jan Kakes, 0. "European banks after the global financial crisis: peak accumulated losses, twin crises and business models," Journal of Banking Regulation, Palgrave Macmillan, vol. 0, pages 1-15.
    2. Barth, James R. & Prabha, Apanard Penny, 2014. "An Analysis of Resolving Too-Big-to-Fail Banks Throughout the United States," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 44(1).
    3. Ozili, Peterson K, 2022. "Difficult issues in financial regulation for financial stability," MPRA Paper 115783, University Library of Munich, Germany.
    4. Lapteacru, Ion, 2017. "Market power and risk of Central and Eastern European banks: Does more powerful mean safer?," Economic Modelling, Elsevier, vol. 63(C), pages 46-59.
    5. Koresh Galil & Margalit Samuel & Offer Moshe Shapir & Wolf Wagner, 2023. "Bailouts and the modeling of bank distress," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 46(1), pages 7-30, February.
    6. Satish Thosar & Bradley Schwandt, 2019. "Has ‘Too Big To Fail’ Been Solved? A Longitudinal Analysis of Major U.S. Banks," JRFM, MDPI, vol. 12(1), pages 1-14, February.
    7. Leo Haan & Jan Kakes, 2020. "European banks after the global financial crisis: peak accumulated losses, twin crises and business models," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(3), pages 197-211, September.
    8. Del Viva, Luca & Kasanen, Eero & Saunders, Anthony & Trigeorgis, Lenos, 2021. "Is bailout insurance and tail risk priced in bank equities?," Journal of Financial Stability, Elsevier, vol. 55(C).
    9. Gao, Yu & Liao, Scott & Wang, Xue, 2018. "Capital markets’ assessment of the economic impact of the Dodd–Frank Act on systemically important financial firms," Journal of Banking & Finance, Elsevier, vol. 86(C), pages 204-223.
    10. Maria Celia López-Penabad & Ana Iglesias-Casal & José Fernando Silva Neto, 2021. "Competition and Financial Stability in the European Listed Banks," SAGE Open, , vol. 11(3), pages 21582440211, July.
    11. Badarau, Cristina & Lapteacru, Ion, 2020. "Bank risk, competition and bank connectedness with firms: A literature review," Research in International Business and Finance, Elsevier, vol. 51(C).
    12. Kozubovska, Mariolia, 2017. "Breaking up big banks," Research in International Business and Finance, Elsevier, vol. 41(C), pages 198-219.
    13. Francis, Bill B. & Hasan, Iftekhar & Song, Liang & Yeung, Bernard, 2015. "What determines bank-specific variations in bank stock returns? Global evidence," Journal of Financial Intermediation, Elsevier, vol. 24(3), pages 312-324.
    14. ap Gwilym, Rhys & Kanas, Angelos & Molyneux, Philip, 2013. "U.S. prompt corrective action and bank risk," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 239-257.

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