Too Big to Fail: The Hazards of Bank Bailouts - Softcover

Stern, Gary H.; Feldman, Ron J.

Softcover

ISBN 10: 081570304X ISBN 13: 9780815703044

Publisher: Brookings Institution Press, 2009

Synopsis

The potential failure of a large bank presents vexing questions for policymakers. It poses significant risks to other financial institutions, to the financial system as a whole, and possibly to the economic and social order. Because of such fears, policymakers in many countries—developed and less developed, democratic and autocratic—respond by protecting bank creditors from all or some of the losses they otherwise would face. Failing banks are labeled "too big to fail" (or TBTF). This important new book examines the issues surrounding TBTF, explaining why it is a problem and discussing ways of dealing with it more effectively.

Gary Stern and Ron Feldman, officers with the Federal Reserve, warn that not enough has been done to reduce creditors' expectations of TBTF protection. Many of the existing pledges and policies meant to convince creditors that they will bear market losses when large banks fail are not credible, resulting in significant net costs to the economy. The authors recommend that policymakers enact a series of reforms to reduce expectations of bailouts when large banks fail.

About this title

About the Author:

Gary H. Stern is president and chief executive officer of the Federal Reserve Bank of Minneapolis. Ron Feldman is senior vice president at the Federal Reserve Bank of Minneapolis. Paul A. Volcker was chairman of the Federal Reserve from 1979 to 1987.

Review:

"This is a valuable and comprehensive treatise on TBTF, a critically important policy issue that needs to be addressed well before another banking or financial crisis occurs. Policymakers, regulators, government officials, legislators, and private financial companies should read and heed the authors' analysis and recommendations." —Richard M. Kovacevich, Chairman, Wells Fargo

"This book should be required reading for all policy makers. Highly recommended." —R J Phillips, Choice

"This short book lucidly explains the moral hazard problem that plagues large financial institutions policymakers deem too big to fail...[it] contains something of interest for everyone." —Peter T. Leeson, George Mason University, Journal of Economic Behavior and Organization

"In this clearly prophetic book, Gary H. Stern and Ron J. Feldman examine the "too big to fail" doctrine, and show how policymakers made the financial system riskier by implicitly promising to bail out the biggest banking institutions. This book is recommended reading for anyone seriously interested in understanding the calculus of financial policymakers, financial system risk, and the tilted playing field that benefits huge, risky banks and their shareholders." — getAbstract

"Stern and Feldman have written an important book on the too-big-to-fail problem....This book deserves to be widely read in the banking regulation and supervisory world." —Frederic Mishkin, Journal of Economic Literature

About this edition

• Publisher: Brookings Institution Press
• Publication date: 2009
• ISBN 10: 081570304X
• ISBN 13: 9780815703044
• Binding: Paperback
• Number of pages: 255