About Research Events Centers Newsroom Currency of Ideas
 
Milken Institute | Newsroom: Press Release | New research from banking experts at the Milken Institute asks the question: "Just How Big Is the Too Big to Fail Problem?" Their answer: perhaps not as big as many fear.
New research from banking experts at the Milken Institute asks the question: "Just How Big Is the Too Big to Fail Problem?" Their answer: perhaps not as big as many fear.

For Immediate Release
March 26, 2012

LOS ANGELES -- "Just How Big Is the Too Big to Fail Problem?", a new report from the Milken Institute, examines the impact of changes in banking regulation since the recent financial crisis. The authors -- Senior Finance Fellow James Barth, Economist Penny Prabha and Senior Fellow Philip Swagel -- suggest that it is uncertain if the changes will truly eliminate TBTF risk.

According to the authors, the new resolution authority designed to allow troubled big banks to fail will, apart from other issues, "be incomplete and perhaps unworkable until there is more progress on the international coordination of bankruptcy regimes."

Other provisions in Dodd-Frank, such as the Volcker rule, limit firms' activities and scale. "But it is difficult to evaluate the cost-benefit ratio," the authors state, "since there is little evidence on either side. In a sense, it is not even easy to pinpoint the problem to which the Volcker Rule is the solution."

The report also puts the U.S. "too big to fail" institutions into international comparison, pointing out that of the 50 biggest banks in the U.S., only seven are among the 50 biggest banks in the world. According to the report, "To the extent that the U.S. banks are limited in size they may be put at a competitive disadvantage as compared to the biggest banks in other countries."

The first TBTF bailout in the United States took place in the early 1980s, but policy makers neglected to implement any serious regulatory measures that would allow deeply troubled big banks to fail until the financial crisis of 2007-2009. In the intervening years, banks have gotten even bigger and banking assets more concentrated in far fewer banks. Citigroup, the largest U.S. bank in 1983, has seen its assets grow 1,387 percent. In 1980, the combined assets of the 50 biggest banks in the U.S. were a third of GDP; by 2011, the ratio had jumped to 98%.

Dodd-Frank, enacted in July 2010, was the U.S. government's effort to address the TBTF problem, with a provision designed to allow deeply troubled banks to fail without negative spillovers. New, more stringent requirements for capital and liquidity also raise the cost of being big. But will these and other reforms taking place worldwide help or hinder the TBTF problem?

For the complete report, "Just How Big is the Too Big to Fail Problem?" click here.

Contact
Conrad Kiechel, Director of Communications
(310) 570-4668
E-mail: ckiechel@milkeninstitute.org

About the Milken Institute
A nonprofit, nonpartisan think tank, the Milken Institute believes in the power of capital markets to solve urgent social and economic challenges. Its mission is to improve lives around the world by advancing innovative economic and policy solutions that create jobs, widen access to capital and enhance health. (www.milkeninstitute.org)


Members of the press may direct inquiries to:

Conrad Kiechel
Director of Communications
Phone: (310) 570-4668
ckiechel@milkeninstitute.org


Jeff Monford
Communications Consultant
Phone (310) 570.4623
jmonford@milkeninstitute.org

About MI
About Us
  Careers
  Contact
  Download Annual Report
  FAQs
  Locations
  Our Team

Blog


Topics

Events
  Associates
  Conferences
  Global Conference
  State of the State
  Summits
  Atlanta / California / London
  Forums
  Labs
  Young Leaders

Experts
Newsroom
  Latest News
  News Videos
  Press Releases

Research
  Centers
    Asia
    California
    FasterCures
    Financial Markets
    Israel Center
    Public Health

Initiatives

Publications
  Books
  Financial Innovations Labs
  Milken Institute Review
   Amazon Apps
   App Store
  Research Reports
  Viewpoints
  Search All Publications
Support MI
  Associates
  Donate
  Sponsorships
  Strategic Partners

Follow Us
  @Twitter
  Facebook
  YouTube
  Google+
  LinkedIn
  iTunes U

Related Sites
  Partnering For Cures 2013
  Celebration of Science
  Chairman's Corner
  Melanoma Research Alliance
  FasterCures

©2014 Milken Institute