Too Big to Fail: A Misguided Policy in Times of Financial Turmoil

Clyde Goodlet
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Clyde Goodlet: Bank of Canada (former)

C.D. Howe Institute Commentary, 2010, issue 311

Abstract: The bailouts carried out by governments for large banks and other financial entities in the recent financial turbulence are often characterized as a Too-Big-To-Fail (TBTF) policy. Proponents of such a policy argue that preventing the failure of large banks (and possibly other financial and non-financial entities) is necessary to limit the impact that such a failure might have on other institutions or on the real economy. Opponents argue that while such a policy might seem attractive in the short run, even given the enormous financial cost to government associated with its intervention, the long-run costs are even larger and are almost always ignored, making TBTF a poor policy choice.

Keywords: Financial Services; too-big-to-fail (TBTF) (search for similar items in EconPapers)
JEL-codes: E52 E58 G28 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (15)

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