Too Big to Fail: A Misguided Policy in Times of Financial Turmoil

32 Pages Posted: 29 Oct 2010  

Clyde Goodlet

affiliation not provided to SSRN

Date Written: October 13, 2010

Abstract

The bailouts carried out by governments for large banks and other financial entities in the recent financial turbulence are often characterized as a Too-Big-To-Fail (TBTF) policy. Proponents of such a policy argue that preventing the failure of large banks (and possibly other financial and non-financial entities) is necessary to limit the impact that such a failure might have on other institutions or on the real economy. Opponents argue that while such a policy might seem attractive in the short run, even given the enormous financial cost to government associated with its intervention, the long-run costs are even larger and are almost always ignored, making TBTF a poor policy choice.

Keywords: Financial Services, Too-Big-to-Fail (TBTF)

JEL Classification: E52, E58, G28

Suggested Citation

Goodlet, Clyde, Too Big to Fail: A Misguided Policy in Times of Financial Turmoil (October 13, 2010). C.D. Howe Institute Commentary No. 311, October 2010. Available at SSRN: https://ssrn.com/abstract=1699299

Clyde Goodlet (Contact Author)

affiliation not provided to SSRN ( email )

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