Too Big to Fail: The Hazards of Bank Bailouts

by Gary H. Stern, Ron J. Feldman, Paul A. Volcker (Foreword)

" 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. "

Genres: Economics, Nonfiction

230 pages, Hardcover

First published February 29, 2004

Reviews

[Stella Metcalf]

Literally predicted 2008. I honestly didn’t have enough background knowledge to fully understand or appreciate this but thankfully I’m unemployed so my time is worth very little.

[E · Rating 5 out of 5]

Profound reflection on the “too big to fail” doctrine

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. In the wake of the global financial crisis in which several major institutions failed in 2008, getAbstract welcomes this reissued, lucid assessment of one of the most perplexing, perverse policies in financial regulation, the idea that some institutions are too big to fail. Former Federal Reserve Chairman Paul A. Volcker’s foreword helps sharpen the book’s focus, and the authors’ advocacy for an end to bailouts is quite persuasive. 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.

[Theresa Leone Davidson · Rating 4 out of 5]

Fascinating book, although the subject matter is dry and not the most scintillating to read about, mostly because this was written in 2004, before our economic meltdown and the bailouts of all of those institutions that we - the public - were told were 'too big to fail.'

[Connie · Rating 5 out of 5]

The definitive book on TBTF -- couldn't have gotten through my thesis without you!