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Just How Big is the Too Big to Fail Problem?

James R. Barth

Auburn University

Apanard P. Prabha

University of Illinois at Springfield; Milken Institute

Phillip Swagel

University of Maryland - School of Public Policy; AEI

March 26, 2012

The idea of banks too big to fail (TBTF) is not new. Indeed, it has been three decades since the first TBTF bailout due to concerns about serious and widespread financial repercussions. Since then, of course, big banks have grown much bigger and have become increasingly complex, both in the United States and elsewhere. In this paper, we put the issue of too big to fail in U.S. historical and quantitative perspective, and assess the potential impacts of recent regulatory changes. The developments relating to the TBTF problem based on a global perspective are also examined. The measures taken since the financial crisis of 2007-2009 — including the Basel III regulatory reforms, domestic regulations like the Dodd-Frank Act, and the designation of global systemically important banks — have distinct purposes but also complement one another, to the extent that they are successful. Our analysis points out that despite the recent regulatory changes the future of TBTF remains unclear, but it is likely that it will be different from the past.

Keywords: banks, financial firms, financial crisis, too big to fail, Dodd-Frank Act, Basel III

JEL Classification: G2, G21, G28

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Date posted: March 27, 2012 ; Last revised: March 28, 2012

Suggested Citation

Barth, James R. and Prabha, Apanard P. and Swagel, Phillip, Just How Big is the Too Big to Fail Problem? (March 26, 2012). Available at SSRN: http://ssrn.com/abstract=2029131 or http://dx.doi.org/10.2139/ssrn.2029131

Contact Information

James R. Barth
Auburn University ( email )
415 West Magnolia Avenue
Auburn, AL 36849
United States
334-844-2469 (Phone)
334-844-4960 (Fax)
Apanard Penny Prabha (Contact Author)
University of Illinois at Springfield ( email )
Springfield, IL 62703
United States
Milken Institute ( email )
1250 Fourth Street
Santa Monica, CA 90401
United States
Phillip Swagel
University of Maryland - School of Public Policy ( email )
College Park, MD 20742-1815
United States
(301) 405-1914 (Phone)
AEI ( email )
1150 17th Street, N.W.
Washington, DC 20036
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