Too Big To Fail Firms Essay examples

Too Big To Fail Firms Essay examples

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In the world of money, firms including banks and nonbank financial companies face adversaries and often fail. When they do, most failures do not result in extreme externalities. In other words, loss of the firm does not place its counterparties into a troubled position. Ergo, the firm would go through a usual resolution process provided by the government. But, some large firms undergo a “special” treatment because of the government’s fear that its losses may have disproportionately big adverse externalities on the economy thus threaten the financial stability. These are the firms to which “too big to fail”, also known as “TBTF” apply. They are also referred to “too important to fail”, “too big to liquidate”, “too big to unwind and, most recently “too big to jail”. (Kaufman, 2013) Because of their capability to melt down the entire economy in the case of crisis, they are showered with public funding along with continuous bailouts. These unconditional supports have fostered generations and generations of controversy. The controversy dealt with in what extend should the government intervene with the financial firms, has it derived the economy to the desired result and flaws of this ironic concept.

Despite their protective and righteous purport, TBTF regime has become a significant public matter in question. Trials of effort to justify TBTF did not turn out so convincing partially because its definition has not yet been fixed. In other words, there is no set standard of “who” precisely is being bailed out and who is not, under “what” circumstances. Beyond the bound of possibility to avoid all insolvency losses of the bank, it is inevitable to make decisions to protect the chosen but not all depositors. This decision primarily relies ...


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...n Sachs gained from bailout of AIG. [online] Available at: http://www.theguardian.com/business/2011/jan/27/goldman-sachs-received-aig-bailout-cash [Accessed 28 Apr. 2014].

Scheer, R. 2013. Too-big-to-fail banks abusing low interest. [online] May 17, 2013. Available at: http://rapidcityjournal.com/news/opinion/scheer-too-big-to-fail-banks-abusing-low-interest/article_32858328-2ce4-5e35-a4dc-70f836bb61d6.html [Accessed: 14 Mar 2014].

Simon, A. 2013. How to Fix too Big to Fail. [online] October 21, 2013. Available at: http://www.nationalreview.com/article/361719/how-fix-too-big-fail-ammon-simon [Accessed: 16 Mar 2014].
Treanor, J. 2013. UK banks benefited from 38bn euro 'too big to fail' state subsidy. [online] Tuesday 17 December 2013. Available at: http://www.theguardian.com/business/2013/dec/17/uk-banks-benefit-from-massive-state-subsidies [Accessed: 14 Mar 2014].

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