Too Many Banks to Fail? Theory and Evidence

The Economists' Voice, Forthcoming

11 Pages Posted: 10 Jul 2013

See all articles by Mufaddal H. Baxamusa

Mufaddal H. Baxamusa

University of St. Thomas

John H. Boyd

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: July 1, 2013

Abstract

The idea of "Too Many to Fail" (hereafter TMTF) is that -- even if the large banks are healthy -- small and medium sized banks can cause a banking crisis if enough of them fail simultaneously. Therefore, it has been argued, containing the risks of "Too Big to Fail" banks (hereafter TBTF) does not address the fundamental cause of systemic banking crises, it just shifts the focus from big banks to smaller ones. We disagree, and show that this line of reasoning is not supported either theoretically or empirically for the US banking system.

Keywords: Too Many to Fail, Too Big to Fail, Bank, Crisis

JEL Classification: G21, G28

Suggested Citation

Baxamusa, Mufaddal H. and Boyd, John H., Too Many Banks to Fail? Theory and Evidence (July 1, 2013). The Economists' Voice, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2291622

Mufaddal H. Baxamusa

University of St. Thomas ( email )

1000 LaSalle Ave.
Minneapolis, MN 55403
United States

John H. Boyd (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
612-624-1834 (Phone)

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