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Breaking (Banks) Up Is Hard to Do: New Perspective on Too Big to Fail

Author

Listed:
  • Barth, James R.

    (Auburn University and Wharton Financial Institutions Center, University of PA)

  • Prabha, Apanard

    (Milken Institute, Santa Monica, CA)

Abstract

Big is bad. At least that has become the view of many individuals about big banks ever since the financial crisis of 2007-2009. The fear is that if a big bank gets into trouble, its problems will infect other financial institutions and threaten the entire economy. In theory, of course, regulators have long been expected to prevent banks from reckless behavior and to shut down failing banks in a timely, orderly, and cost-effective manner. Historically, however, big banks in the United States and in many other countries have been implicitly treated as "too big to fail." In the United States, the practice of treating troubled big banks differently from troubled small ones dates back to the 1984 bailout of Continental Illinois Corporation.

Suggested Citation

  • Barth, James R. & Prabha, Apanard, 2012. "Breaking (Banks) Up Is Hard to Do: New Perspective on Too Big to Fail," Working Papers 12-16, University of Pennsylvania, Wharton School, Weiss Center.
    • Handle: RePEc:ecl:upafin:12-16
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    File URL: http://fic.wharton.upenn.edu/fic/papers/12/12-16.pdf
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    Cited by:

    1. Prabha, Apanard (Penny) & Wihlborg, Clas, 2014. "Implicit guarantees, business models and banks’ risk-taking through the crisis: Global and European perspectives," Journal of Economics and Business, Elsevier, vol. 76(C), pages 10-38.
    2. Dorothée Rouzet & Hildegunn Kyvik Nordås & Frédéric Gonzales & Massimo Geloso Grosso & Iza Lejárraga & Sébastien Miroudot & Asako Ueno, 2014. "Services Trade Restrictiveness Index (STRI): Financial Services," OECD Trade Policy Papers 175, OECD Publishing.
    3. James R. Barth & Gerard Caprio & Ross Levine, 2013. "Bank regulation and supervision in 180 countries from 1999 to 2011," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 5(2), pages 111-219, May.

    More about this item

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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