Too Big to Fail: The Hazards of Bank Bailouts FROM THE PUBLISHER
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.
About the Author:
Gary H. Stern is president and chief executive officer of the Federal
Reserve Bank of Minneapolis. He also serves as chairman of the board of
directors of both the National Council on Economic Education and the
Northwest Area Foundation.
Ron J. Feldman is assistant vice-president at the Federal Reserve Bank
of Minneapolis. His recent articles include Mortgage Rates,
Homeownership Rates, and Government-Sponsored Enterprises (The Region,
2002).
SYNOPSIS
Stern (president and chief executive officer) and Feldman (vice president) of the Federal Reserve Bank of Minneapolis further their arguments that policymakers could and should enact reforms that reduce creditors' expectations of a bailout when a bank gets into trouble and claims to need a bailout to save the economy. They also explain how earlier legislation has failed to fix the problem. Annotation ©2004 Book News, Inc., Portland, OR
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