Too Big to Fail: The Hazards of Bank Bailouts / Edition 1

Too Big to Fail: The Hazards of Bank Bailouts / Edition 1

by Gary H. Stern, Ron J. Feldman, Ron Feldman
     
 

ISBN-10: 0815781520

ISBN-13: 9780815781523

Pub. Date: 11/28/2003

Publisher: Brookings Institution Press

The potential failure of a large bank presents vexing questions for policymakers. It poses significant risks to other financial institutions, to the financial system as a whole, and possibly to the economic and social order. Because of such fears, policymakers in many countries—developed and less developed, democratic and autocratic—respond by protecting

Overview

The potential failure of a large bank presents vexing questions for policymakers. It poses significant risks to other financial institutions, to the financial system as a whole, and possibly to the economic and social order. Because of such fears, policymakers in many countries—developed and less developed, democratic and autocratic—respond by protecting bank creditors from all or some of the losses they otherwise would face. Failing banks are labeled "too big to fail" (or TBTF). This important new book examines the issues surrounding TBTF, explaining why it is a problem and discussing ways of dealing with it more effectively.

Gary Stern and Ron Feldman, officers with the Federal Reserve, warn that not enough has been done to reduce creditors' expectations of TBTF protection. Many of the existing pledges and policies meant to convince creditors that they will bear market losses when large banks fail are not credible, resulting in significant net costs to the economy. The authors recommend that policymakers enact a series of reforms to reduce expectations of bailouts when large banks fail.

Product Details

ISBN-13:
9780815781523
Publisher:
Brookings Institution Press
Publication date:
11/28/2003
Edition description:
New Edition
Pages:
230
Product dimensions:
6.46(w) x 9.32(h) x 0.87(d)

Table of Contents

Forewordvii
Prefacexi
1Introduction: Our Message and Methods1
1Warnings9
2What Is the Problem?11
3Why Protection Is Costly23
4How Pervasive Is TBTF?29
5Why Protect TBTF Creditors?43
6The Growth of TBTF Protection60
7Testing Our Thesis: The Cases of Not Too Big to Fail80
2Options87
8Can the Problem Be Addressed?89
9Creating the Necessary Foundation98
10Reducing Policymakers' Uncertainty111
11Limiting Creditor Losses124
12Restricting Payment System Spillovers132
13Alternatives for Managing Too Big to Fail141
14Summary: Talking Points on Too Big to Fail146
Appendixes
AFDICIA: An Incomplete Fix149
BPenalizing Policymakers159
CSupervision and Regulation168
DIncreasing Market Discipline179
References197
Index223

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