Title

Too many banks to fail? Theory and evidence

Department/School

Finance

Date of this version

2013

Document Type

Article

Keywords

Too-many-too fail, too-big-too-fail, bank, financial crisis, banking crisis

Abstract

The idea of “Too Many to Fail” (hereafter TMTF) is that-- even if the large banks are healthy -- small and medium sized banks can cause a banking crisis if enough of them fail simultaneously. Therefore, it has been argued, containing the risks of “Too Big to Fail” banks (hereafter TBTF) does not address the fundamental cause of systemic banking crises, it just shifts the focus from big banks to smaller ones. We disagree, and show that this line of reasoning is not supported either theoretically or empirically for the US banking system.

Published in

The Economists’ Voice

Citation/Other Information

10(1), 7-13. DOI 10.1515/ev-2013-0015