Journal Article

Too big to fail : origins, consequences, and outlook

Abstract: The policy of too big to fail arose in part from pressures created by the lack of satisfactory bankruptcy arrangements for banks. It prevented market forces from closing banks and protected all uninsured depositors of large banks from loss in the event of failure. The consequent risk-taking behavior of banks produced the systemic instability in banking that the policy was designed to prevent. It is debatable how the Deposit Insurance Reform Act of 1991 will affect the timing of bank closures, the risk-taking behavior of banks, and the contraction of the banking industry.

Keywords: Bank failures;

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Economic Review

Publication Date: 1991

Volume: 77

Issue: Nov

Pages: 3-15