Too Big to Fail and Too Big to Save: Dilemmas for Banking Reform

James Barth and Clas Wihlborg

National Institute Economic Review, 2016, vol. 235, issue 1, R27-R39

Abstract: ‘Too big to fail’ traditionally refers to a bank that is perceived to generate unacceptable risk to the banking system and indirectly to the economy as a whole if it were to default and be unable to fulfill its obligations. Such a bank generally has substantial liabilities to other banks through the payment system and other financial links, which can be sources of ‘contagion’ if a bank fails. The main objectives in this paper are to identify the different dimensions of too big to fail and evaluate various proposed reforms for dealing with this problem. In addition, we document the various dimensions of size and complexity, which may contribute to or reduce a bank's systemic risk. Furthermore, we provide an assessment of economic and political factors shaping the future of too big to fail.

Keywords: financial crises; too big to fail; systemically important banks; Dodd-Frank Act; Financial Stability Board; regulation and supervision (search for similar items in EconPapers)
JEL-codes: G18 G21 G28 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (10)

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