Failure is an option: an ersatz-antitrust approach to financial regulation.: An article from: Yale Law Journal
Book Details
PublisherYale University, School of Law
ISBN / ASINB004WMKUZC
ISBN-13978B004WMKUZ8
MarketplaceFrance 🇫🇷
Description
This digital document is an article from Yale Law Journal, published by Yale University, School of Law on April 1, 2011. The length of the article is 23570 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available immediately after purchase. You can view it with any web browser.
From the author: We distinguish the economic problems when large financial institutions ("banks") become insolvent from the political challenges that exist before banks are distressed. These political problems arise because policymakers would like to be able to precommit while a bank is still healthy to refrain from bailing out the bank later, should it become distressed. Political theory and historical experience show that politicians facing unsettled capital markets and highly anxious voters will always bail out the financial institutions that they deem "Too Big To Fail." As such, the only way for government credibly to commit to refrain from pursuing a Too Big To Fail policy is to break up the largest financial institutions before they become Too Big To Fail. We identify the size at which we believe banks become Too Big To Fail. Banks that reach this size should be broken up. Liabilities should be limited to a metric based on the actual funds devoted to resolving failed banks. The metric that we identify is the targeted value of the FDIC's Deposit Insurance Fund. We would prohibit any financial institution from amassing liabilities in an amount greater than five percent of the targeted value of this fund. The government could thereby commit credibly to stopping bailouts and to pursuing a policy of allowing financial institutions to fail. We believe that the lost economies of scale associated with this "ersatz-antitrust policy" would be offset by the large savings realized by avoiding future bailouts.
Citation Details
Title: Failure is an option: an ersatz-antitrust approach to financial regulation.
Author: Jonathan R. Macey
Publication:Yale Law Journal (Magazine/Journal)
Date: April 1, 2011
Publisher: Yale University, School of Law
Volume: 120 Issue: 6 Page: 1368(51)
Distributed by Gale, a part of Cengage Learning
From the author: We distinguish the economic problems when large financial institutions ("banks") become insolvent from the political challenges that exist before banks are distressed. These political problems arise because policymakers would like to be able to precommit while a bank is still healthy to refrain from bailing out the bank later, should it become distressed. Political theory and historical experience show that politicians facing unsettled capital markets and highly anxious voters will always bail out the financial institutions that they deem "Too Big To Fail." As such, the only way for government credibly to commit to refrain from pursuing a Too Big To Fail policy is to break up the largest financial institutions before they become Too Big To Fail. We identify the size at which we believe banks become Too Big To Fail. Banks that reach this size should be broken up. Liabilities should be limited to a metric based on the actual funds devoted to resolving failed banks. The metric that we identify is the targeted value of the FDIC's Deposit Insurance Fund. We would prohibit any financial institution from amassing liabilities in an amount greater than five percent of the targeted value of this fund. The government could thereby commit credibly to stopping bailouts and to pursuing a policy of allowing financial institutions to fail. We believe that the lost economies of scale associated with this "ersatz-antitrust policy" would be offset by the large savings realized by avoiding future bailouts.
Citation Details
Title: Failure is an option: an ersatz-antitrust approach to financial regulation.
Author: Jonathan R. Macey
Publication:Yale Law Journal (Magazine/Journal)
Date: April 1, 2011
Publisher: Yale University, School of Law
Volume: 120 Issue: 6 Page: 1368(51)
Distributed by Gale, a part of Cengage Learning
