Why Large Bank Failures Are So Messy and What to Do about It?

James McAndrews, Donald Morgan, Joao Santos and Tanju Yorulmazer

No 20140404a, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: If the Lehman Brothers failure proved anything, it was that large, complex bank failures are messy; they destroy value and can destabilize financial markets. We certainly don’t mean to trivialize matters by calling large bank failures “messy,” as it their messiness, particularly the destabilizing aspect, that creates the “too-big-to-fail” problem. In our contribution to the Economic Policy Review volume, we venture an explanation about why large bank failures are so messy and discuss a policy that can make them less so.

Keywords: bail-inable debt; bank failures; resolution; bank runs; firesales (search for similar items in EconPapers)
JEL-codes: G2 (search for similar items in EconPapers)
Date: 2014-04-04
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