Too Big to Fail: Origins, Consequences, and Outlook

13 Pages Posted: 6 Nov 2012

See all articles by Robert L. Hetzel

Robert L. Hetzel

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 1991

Abstract

The policy of too big to fail arose in part from pressures created by the lack of satisfactory bankruptcy arrangements for banks. It prevented market forces from closing banks and protected all uninsured depositors of large banks from loss in the event of failure. The consequent risk-taking behavior of banks produced the systemic instability in banking that the policy was designed to prevent. It is debatable how the Deposit Insurance Reform Act of 1991 will affect the timing of bank closures, the risk-taking behavior of banks, and the contraction of the banking industry.

Suggested Citation

Hetzel, Robert L., Too Big to Fail: Origins, Consequences, and Outlook (1991). FRB Richmond Economic Review, vol. 77, no. 6, November/December 1991, pp. 3-15, Available at SSRN: https://ssrn.com/abstract=2126164

Robert L. Hetzel (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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