Discussion Paper

Why Large Bank Failures Are So Messy and What to Do about It?

Abstract: If the Lehman Brothers failure proved anything, it was that large, complex bank failures are messy; they destroy value and can destabilize financial markets. We certainly don?t mean to trivialize matters by calling large bank failures ?messy,? as it their messiness, particularly the destabilizing aspect, that creates the ?too-big-to-fail? problem. In our contribution to the Economic Policy Review volume, we venture an explanation about why large bank failures are so messy and discuss a policy that can make them less so.

Keywords: bail-inable debt; Bank Failure; resolution; bank runs; firesales;

JEL Classification: G2;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2014-04-04

Number: 20140404a