Too big to fail: the transatlantic debate

Although the United States and the European Union were bothseriously impacted by the financial crisis of 2007, the resulting policy debates and regulatory responses have differed considerably on the two sides of the Atlantic. This paper by Nicolas Véron and Morris Goldstein examines the debates on the problem posed by "too big to fail" financial institutions. The authors then turn to possible remedies and how they may be differentially implemented in America and Europe. They conclude on the policy developments that are likely in the near future.

The Value of the “Too Big to Fail” Big Bank Subsidy

One outcome of the TARP and other bank rescue efforts following the collapse of Lehman Brothers in September of 2008 is that the United States has essentially formalized a commitment to a “too big to fail” (TBTF) policy for major banks. This paper uses data from the FDIC on the relative cost of funds for TBTF banks and other banks, before and after the crisis, to quantify the value of the government protection provided by the TBTF policy.Federal Reserve, Treasury, banks

Too-big-to-fail after FDICIA

This reprint of a 1993 article outlines what Congress intended the Federal Deposit Insurance Corporation Improvement Act of 1991 to accomplish. A new preface discusses FDICIA's successes and failures as well as research calling for clearer policies to deal with the problem of "too big to fail" banks.Federal Deposit Insurance Corporation Improvement Act of 1991 ; Deposit insurance

Too big to fail

Wernhard Möschel, Universität Tübingen, kommentiert die Möglichkeit der Limitierung volkswirtschaftlicher Risiken durch Großunternehmen, insbesondere in der Bankwirtschaft. Möschel benennt die Probleme, die mit systemrelevanten Banken verknüpft sind, diskutiert die erwogenen Maßnahmen und gibt einen Ausblick auf Wege zur Risikobegrenzung.Bankensystem Eigenkapital Risiko Bankinsolvenz Bankenaufsicht Bankrecht

Too Big to Fail: The Transatlantic Debate

Although the United States and the European Union were both seriously impacted by the financial crisis of 2007, resulting policy debates and regulatory responses have differed considerably on the two sides of the Atlantic. In this paper the authors examine the debates on the problem posed by “too big to fail” financial institutions. They identify variations in historical experiences, financial system structures, and political institutions that help one understand the differences of approaches between the United States, EU member states, and the EU institutions in addressing this problem. The authors then turn to possible remedies and how they may be differentially implemented in America and Europe. They conclude on which policy developments are likely in the near future.banks, comparative political economy, financial regulation, microprudential policy, too-big-to-fail

Is the US too big to fail?

Why are investors rushing to purchase US government securities when the US is the epicentre of the financial crisis? This column attributes the paradox to key emerging market economies’ exchange practices, which require reserves most often invested in US government securities. America’s exorbitant privilege comes with a cost and a responsibility that US policy makers should bear in mind as they handle the crisis.financial crisis, exchange rates, reserves,government

Regulating “Too Big to Fail”

The Dodd-Frank Act does not provide sufficient protection against another major financial crisis. A better regulatory system would promote financial stability by correcting the key market failures that lead to excessive risk taking by Strategically Important Financial Institutions (SIFIs). Regulatory policies centered on contingent capital would offer a clearer and purer market signal when a SIFI is performing poorly and trigger steps to mitigate the financial risks.https://repository.upenn.edu/pennwhartonppi/1006/thumbnail.jp

Too Big to Fail in the Local Group

We compare the dynamical masses of dwarf galaxies in the Local Group (LG) to the predicted masses of halos in the ELVIS suite of $\Lambda$CDM simulations, a sample of 48 Galaxy-size hosts, 24 of which are in paired configuration similar to the LG. We enumerate unaccounted-for dense halos ($V_\mathrm{max} \gtrsim 25$ km s$^{-1}$) in these volumes that at some point in their histories were massive enough to have formed stars in the presence of an ionizing background ($V_\mathrm{peak} > 30$ km s$^{-1}$). Within 300 kpc of the Milky Way, the number of unaccounted-for massive halos ranges from 2 - 25 over our full sample. Moreover, this "too big to fail" count grows as we extend our comparison to the outer regions of the Local Group: within 1.2 Mpc of either giant we find that there are 12-40 unaccounted-for massive halos. This count excludes volumes within 300 kpc of both the MW and M31, and thus should be largely unaffected by any baryonically-induced environmental processes. According to abundance matching -- specifically abundance matching that reproduces the Local Group stellar mass function -- all of these missing massive systems should have been quite bright, with $M_\star > 10^6M_\odot$. Finally, we use the predicted density structure of outer LG dark matter halos together with observed dwarf galaxy masses to derive an $M_\star-V_\mathrm{max}$ relation for LG galaxies that are outside the virial regions of either giant. We find that there is no obvious trend in the relation over three orders of magnitude in stellar mass (a "common mass" relation), from $M_\star \sim 10^8 - 10^5 M_\odot$, in drastic conflict with the tight relation expected for halos that are unaffected by reionization. Solutions to the too big to fail problem that rely on ram pressure stripping, tidal effects, or statistical flukes appear less likely in the face of these results.Comment: 16 pages, 14 figures, 2 tables, submitted to MNRA

Too Big to Fail, Too Blind to See

Too Big to Fail by Andrew Ross Sorkin offers a meticulous re-telling of one of the most important periods in recent history. As regulators, bankers, lawyers, scholars, and other interested parties sift through the rubble in search of knowledge about the crash, Too Big to Fail serves both as a chronicle of the recent past and a cautionary tale for the immediate future. Acknowledging past missteps, uncovering root causes, and correcting systemic shortcomings to prevent similar failure is arguably the key economic and regulatory challenge of our time. Part I of this Essay summarizes key episodes of the financial crisis as covered by Too Big to Fail. Part II examines a potential explanation of the crisis unexplored in the book in light of the decline of neoclassical economic theory and the emergence of behavioral economic theory