Can feedback solve the too-big-to-fail problem?

The Effects of Too-Big-to-fail Banks on Depositors' Behavior

In the wake of recent financial crisis, large banks have been considered as important factors in financial markets in the world, since these bankschr(chr('39')39chr('39')) failure could affect the whole economy by extending systemic risk. With regard to this issue, when large banks face insolvency or bankruptcy, larger part of economy would be affected, and with the interconnectedness between b...

Risk externalities and too big to fail

This paper establishes the case for a fallacy of economies of scale in large aggregate institutions and the effects of scale risks. The problem of rogue trading and excessive risk taking is taken as a case example. Assuming (conservatively) that a firmexposure and losses are limited to its capital while external losses are unbounded, we establish a condition for a firm not to be allowed to be t...

How to Design a Contingent Convertible Debt Requirement That Helps Solve Our Too-Big-to-Fail Problem*

* This article is based on a paper originally published as “Why and How to Design a Contingent Convertible Debt Requirement,” Chapter 5 in Rocky Times: New Perspectives on Financial Stability, edited by Yasuyuki Fuchita, Richard J. Herring and Robert E. Litan, Washington: Brookings/NICMR Press, 2012. For helpful comments, the authors wish to thank, without implicating, Don Chew, Wilson Ervin, M...

Nber Working Paper Series How Big a Problem Is Too Big to Fail?

This review essay examines whether too-big-to-fail is as serious a problem as Gary Stern and Ron Feldman contend. This essay argues that Stern and Feldman overstate the importance of the too-bigto-fail problem and do not give enough credit to the FDICIA legislation of 1991 for improving bank regulation and supervision. However, this criticism of the Stern and Feldman book does not detract from ...

An INDUSTRIAL ORGANIZATION APPROACH TO THE TOO BIG TO FAIL PROBLEM