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Bringing to Heel the Elephants in the Economy: The Case for Ending 'Too Big to Fail'

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dc.contributor.author Graham, Ann
dc.date.accessioned 2011-03-29T18:18:17Z
dc.date.available 2011-03-29T18:18:17Z
dc.date.issued 2009
dc.identifier.citation 8 Pierce L. Rev. 117
dc.identifier.uri http://hdl.handle.net/10601/1303
dc.description.abstract Financial institutions labeled Too Big To Fail (TBTF) are those whose insolvency could shake the foundations of our economy. This paper presents a history of the government bailout doctrine which has become a blank check for economic giants. Eight recent examples of the doctrine’s invocation are compared with three recent examples of government refusal to follow TBTF. Nineteen financial conglomerates that recently participated in “stress testing” can easily be identified as eligible for TBTF. Recognizing the cost of TBTF, reviewing the FDICIA fix in federal legislation that did not fix the problem of TBTF, analyzing the role of systemic risk and economic bubbles in TBTF, reconsidering the desirability of financial industry consolidation, and recommending steps to address the moral hazard issues arising from market expectations regarding TBTF lead to the conclusion that with vision and resolve, Congress can end TBTF and protect our financial system from key mistakes of the past. This article makes the case for ending TBTF bailouts by reducing the size and interconnectedness of large financial conglomerates. Potential mechanisms to accomplish that end include: (1) Imposing size caps that limit continued expansion of financial conglomerates through internal growth and acquisitions; (2) Ending government-assisted acquisitions that allow the largest institutions to grow even larger – at public expense; (3) Reinstating true fire-walls between banking and commerce; (4) Returning to meaningful anti-trust enforcement; (5) Immediately initiating reform measures such as increased capital for large institutions, subordinated debt requirements that enhance market discipline, enhanced systemic risk monitoring and regulation, and better advance planning for liquidating large complex financial institutions; and (6) As a longer term measure, commissioning a carefully researched report on how to most effectively divide the existing conglomerates into manageable component parts that will no longer be Too Big To Fail. Ending TBTF will be no easy task. Yet, the costs of doing nothing to address the problem have proven to be devastating.
dc.language.iso en_US en_US
dc.publisher Pierce Law Review
dc.relation.uri http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1565584
dc.relation.uri http://www.heinonline.org/HOL/Page?public=false&handle=hein.journals/plr8&men_hide=false&men_tab=citnav&collection=journals&page=117
dc.relation.uri https://a.next.westlaw.com/Document/I02992b0054b511df9b8c850332338889/View/FullText.html
dc.subject Economy en_US
dc.subject Bail out en_US
dc.subject Too big to fail
dc.subject Financial industry
dc.subject Financial conglomerates
dc.subject Corporate bailout
dc.subject FDICIA
dc.subject Economic bubbles
dc.subject Bank consolidation
dc.subject Moral hazard
dc.title Bringing to Heel the Elephants in the Economy: The Case for Ending 'Too Big to Fail' en_US
dc.type Article en_US

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