The social costs and benefits of too-big-to-fail banks: A “bounding” exercise

John H. Boyd and Amanda Heitz

Journal of Banking & Finance, 2016, vol. 68, issue C, 251-265

Abstract: While the policy of too-big-to-fail has received wide attention in the literature, there is little agreement regarding economies of scale for financial firms. We take the stand that systemic risk increases when the larger players in the financial sector have a larger share of output. Calculations indicate that the cost to the macro-economy due to increased systemic risk is always much larger than the potential benefit due to scale economies. When distributional and intergenerational issues are considered, the potential benefits to economies of scale are unlikely to ever exceed the potential costs due to increased risk of a banking crisis.

Keywords: Financial crisis; Financial intermediation; Banking (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:68:y:2016:i:c:p:251-265

DOI: 10.1016/j.jbankfin.2016.03.006

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