Too Big To Fail

• Too Big To Fail

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Bank regulation - Too Big To Fail and Moral Hazard

1 Among the reasons for maintaining close regulation of banking

institutions is the aforementioned concern over the global

repercussions that could result from a bank's failure; the idea that these Bulge bracket|bulge bracket banks

are Too big to fail|too big to fail


Chaebol - Too big to fail

1 They allowed this because there was a common misconception that these

businesses were too big to fail - many did not believe that the

chaebols were capable of collapsing and that the more they borrowed,

the safer they were


Andrew Ross Sorkin - Too Big to Fail

1 Sorkin's book on the Wall Street banking crisis, Too Big to Fail: The

Inside Story of How Wall Street and Washington Fought to Save the

Financial System -- and Themselves, was published by Viking Press|Viking

October 20, 2009.


Too big to fail

1 The colloquial term too big to fail was popularized by U.S


Too big to fail

1 The global economic system must also deal with sovereign states being too big to fail.Paul Krugman

[http://www.nytimes.com/2010/04/02/opinion/02krugman.html Financial Reform 101] April 1, 2010Paul Krugman

[http://krugman.blogs.nytimes.com/2010/04/21/stop-stop-too-big-to-fail/ Stop 'Stop Too Big To Fail'.] April 21,

2010Paul Krugman [http://krugman.blogs.nytimes.com/2009/06/18/too-big-

to-fail-fail/ Too big to fail FAIL] June 18, 2009Paul Krugman

[http://krugman.blogs.nytimes.com/2009/06/19/a-bit-more-on-too-big-to-fail-and-related/ A bit more on too

big to fail and related] June 19, 2009


Too big to fail

1 Drew, The Business Week, http://www.businessweek.com/bwdaily/dnflash/content/feb2009/db20090218_166676.htm retrieved on March 20, 2009 Some critics, such as Alan Greenspan, believe that such large

organisations should be deliberately broken up: “If they’re too big to fail,

they’re too big”


Too big to fail - Resolution authority

1 Research into historical banking trends suggests that the consumption loss

associated with National Banking Era bank runs was far more costly than the

consumption loss from stock market crashes.[http://www.chicagofed.org/digital_a

ssets/publications/working_papers/2011/wp2011_15.pdf Federal Reserve Bank of

Chicago, The Cost of Banking Panics in an Age before “Too Big to Fail”, November

2011]https://store.theartofservice.com/the-too-big-to-fail-toolkit.html

Too big to fail - Bank size and concentration

1 Bank size, complexity, and interconnectedness with other banks may

inhibit the ability of the government to resolve (wind-down) the bank without significant disruption to the financial

system or economy, as occurred with the Lehman Brothers bankruptcy in September

2008. This risk of too big to fail entities increases the likelihood of a government

bailout using taxpayer dollars.


Too big to fail - Implicit guarantee subsidy

1 Since the full amount of the deposits and debts of too big to fail banks are

effectively guaranteed by the government, large depositors and

investors view investments with these banks as a safer investment than

deposits with smaller banks. Therefore, large banks are able to pay lower

interest rates to depositors and investors than small banks are obliged to pay.



1 : 'Too big to fail' has become worse. It's become explicit when it was

implicit before. It creates competitive disparities between large and small

institutions, because everybody knows small institutions can fail. So it's more expensive for them to raise

capital and secure funding.



1 banking organizations are willing to pay an added premium for mergers that will put

them over the asset sizes that are commonly viewed as the thresholds for

being too big to fail.[http://www.kansascityfed.org/Publicat/R

ESWKPAP/PDF/RWP07-05.pdf Federal Reserve Bank of Kansas City, How Much

Would Banks Be Willing to Pay to Become “Too-Big-to-Fail” and to Capture Other

Benefits?, July 2007]https://store.theartofservice.com/the-too-big-to-fail-toolkit.html


1 This shift in the large banks' cost of funds was in effect equivalent to an indirect too big to fail subsidy of $34

billion per year to the 18 U.S



1 The editors of Bloomberg View estimated there was an $83 billion annual subsidy to the 10 largest United States banks,

reflecting a funding advantage of 0.8 percentage points due to implicit government support, meaning the profits of such banks

are largely a taxpayer-backed illusion.[http://economix.blogs.nytimes.com/2013/11/29/reducin

g-the-impact-of-too-big-to-fail/#more-170457 NYT-Phillip Swagel-Reducing the Impact of Too Big to Fail-November 29,

2013][http://www.bloomberg.com/news/2013-02-20/why-should-taxpayers-give-big-banks-83-billion-a-year-.html

Bloomberg-Why Should Taxpayers Give Banks $83 Billion a Year?-February 20,

2013][http://www.bloomberg.com/news/2013-12-01/how-to-know-when-we-ve-ended-the-83-billion-bank-subsidy.html

Bloomberg-How to Know When We've Ended the $83 Billion Bank Subsidy-December 1, 2013]



1 Another study by Frederic Schweikhard and Zoe Tsesmelidakis,[http://papers.ssrn.com/sol3/papers.cfm?

abstract_id=1573377 The Impact of Government Interventions on CDS and Equity Markets] estimated the amount saved by America's biggest banks from having a perceived safety net of a government bailout was $120

billion from 2007 to 2010.[http://www.businessweek.com/articles/2012-07-05/t

he-price-of-too-big-to-fail The Price of Too Big to Fail] By Brendan Greeley, businessweek.com, 5 July 2012 For

America's biggest banks the estimated savings was $53 billion for Citigroup, $32 billion for Bank of America, $10

billion for JPMorgan, $8 billion for Wells Fargo, and $4 billion for AIG



1 The authors concluded: “Passage of Dodd-Frank did not eliminate expectations of government

support.”[http://economix.blogs.nytimes.com/2013/04/25/the-treasurys-

mistaken-view-on-too-big-to-fail/ NYT-Johnson and Parsons-The

Treasury's Mistaken View on Too Big to Fail-]



1 However, the GAO reported that politicians and regulators would still face significant pressure to bail out

large banks and their creditors in the event of a financial

crisis.[http://www.bloomberg.com/news/2013-11-15/moody-s-thinks-we-

ve-solved-too-big-to-fail.html Bloomberg-Mark Whitehouse-

Moody's Thinks We've Solved Too Big to Fail-November 15, 2013]


Too big to fail - Solutions

1 The solutions to the too big to fail issue are controversial. Some options

include breaking up the banks, reducing risk taking through

regulation, bank taxes that increase for larger institutions, and increased

monitoring.


Too big to fail - Break-up the largest banks

1 It’s the mega-banks that present the mega-costs...banks that are too big

to fail are too big to exist


Too big to fail - Reduce risk-taking through regulation

1 However, the regulations required to enforce these elements of the law were not implemented during

2013 and were under attack by bank lobbying efforts.[http://rortybomb.wordpress.com/2010/02/05/a-roadmap-of-the-shadow-banks-plus-targeting-

the-volcker-rule/ Mike Konczal-Rortybomb-A Roadmap of the Shadow Banks-February 2010]

[http://voices.washingtonpost.com/ezra-klein/2010/04/too_big_to_fail_in_two_dimensi.html Washington

Post-Mike Konczal-Too Big to Fail in Two Dimensions-April 2010]


Too big to fail - Too big to fail tax

1 Economist Willem Buiter proposes a tax to internalize the massive costs inflicted by too big to fail institution


Too Big to Fail (book)

1 'Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves', also

known as 'Too Big to Fail: Inside the Battle to Save Wall Street', is a non-fiction book by

Andrew Ross Sorkin chronicling the events of the 2008 financial crisis and the Bankruptcy of Lehman Brothers|collapse of Lehman Brothers from the point of view of Wall Street CEOs and

US government regulators. The book was released on October 20, 2009 by Viking Press.


Too Big to Fail (film)

1 television drama film first broadcast on Home Box Office|HBO on May 23, 2011 based on Andrew Ross Sorkin's non-fiction book Too Big to Fail: The Inside Story of How Wall Street and

Washington Fought to Save the Financial System—and Themselves

(2009)


Too Big to Fail (film) - Plot summary

1 Too Big to Fail chronicles the Late-2000s financial crisis#Credit markets

and the shadow banking system|2008 financial meltdown, focusing on

the actions of United States Secretary of the Treasury|U.S


Too Big to Fail (film) - Plot summary

1 An epilogue reveals that although markets did stabilize and the banks repaid their

Troubled Asset Relief Program funds, credit standards continued to tighten resulting in rising unemployment and foreclosures. As bank mergers continued in the wake of the crisis, these banks became even larger and,

at the time of the film, 10 financial institutions held 77% of all U.S. banking

assets and have been declared too big to fail.


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Too Big To Fail