We keep hearing from United States’ leading economists like Ben Bernanke and Henry Paulson that a bailout is needed because some banks are simply “too big to fail.”
This raises some questions about the financial industry going forward: Is any legislation or regulation needed to avoid repeating a similar crisis in the future? Or does the system essentially work well? Is this just an anomaly that requires no long-term response?
- What does “too big to fail” mean?
- If banks should be allowed to become “too big to fail,” what are the remedies or options when/if a bank flirts with failure?
- What constitutes a financial institution that is “too big?” Who decides? How would it be calculated or monitored?
- What would happen to a financial institution if it was deemed “too big to fail?”
Please Note: The Financial Brand is not suggesting nor advocating any position on this issue.