Understanding the Facts Regarding the Ongoing Debate about “Too Big to Fail”

Understanding the Facts Regarding the Ongoing Debate about “Too Big to Fail”

No bank should be “too big to fail,” and the financial crisis in 2008 demonstrated that financial reforms were necessary to prevent taxpayers from ever again having to step in to prevent a systemic failure.  In response, the chances of a large banking organization failing have been greatly reduced by higher levels of and better quality of capital and liquidity, central clearing and other efforts to reduce risk; if a banking organization should fail, a new legal regime imposes losses from failed institutions on shareholders and creditors without government “bailouts.” However, as evidenced at the Minneapolis Federal Reserves’ recent Ending Too Big to Fail Policy symposium, some scholars have chosen to ignore the reality of these seismic changes.  They continue to propagate myths that are inconsistent with reality.

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The views expressed do not necessarily reflect those of the Bank Policy Institute’s member banks, and are not intended to be, and should not be construed as, legal advice of any kind.