Not a Bank, Not a SIFI; Still Too Big to Fail

28 Pages Posted: 2 Jun 2019 Last revised: 10 Oct 2019

See all articles by Oscar Couwenberg

Oscar Couwenberg

NHL Stenden University of Applied Sciences; University of Groningen - Campus Fryslan

Stephen J. Lubben

Seton Hall Law School

Date Written: June 11, 2018

Abstract

Many have wrestled with too big to fail firms, with the attention predominantly focused on banks, especially the so-called systemically important ones, i.e. SIFI’s (“Systematically Important Financial Institutions”). In this Article we look at too big to fail firms. We focus on cases of large firms that are not banks but were considered too big to fail when in financial distress. We look at a diverse set of multi-jurisdictional, internationally active and nationally very important large firms, analyze their outcomes and whether and in what way they were supported by their respective governments. This analysis reveals that all these firms can be categorized in one of four types of resolution frames: a standard bankruptcy procedure, a bankruptcy procedure with funding support from the state, an ad hoc solution and a full bailout by the government. We argue that only the first two types are needed for resolving financial distress, with the latter two inefficient. We provide arguments for the efficiency of the government support via the bankruptcy procedure in a jurisdiction and we discuss how this fits our cases. We conclude that for large firms the moral hazard associated with the too big to fail argument can be mitigated, but that it at least implies a bankruptcy procedure that is able to handle such large cases.

Keywords: Bankruptcy, TBTF

JEL Classification: F23, G33, K20

Suggested Citation

Couwenberg, Oscar and Lubben, Stephen J., Not a Bank, Not a SIFI; Still Too Big to Fail (June 11, 2018). 35 Emory Bankr. Dev. J. 53 (2019), University of Groningen Faculty of Law Research Paper No. 17/2019, Seton Hall Public Law Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3386019

Oscar Couwenberg (Contact Author)

NHL Stenden University of Applied Sciences ( email )

Rengerslaan 8-10
Leeuwarden, Friesland 8917 DD
Netherlands
31 582441479 (Phone)

University of Groningen - Campus Fryslan ( email )

Wirdumerdijk 34
Leeuwarden, 8911 CE
Netherlands
31 582055000 (Phone)

HOME PAGE: http://www.rug.nl/staff/o.couwenberg/?lang=en

Stephen J. Lubben

Seton Hall Law School ( email )

One Newark Center
Newark, NJ 07102-5210
United States
973-642-8857 (Phone)

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