Working Paper No. 2: Access to Deposit Insurance and Lender-of-Last-Resort Liquidity

Working Paper No. 2: Access to Deposit Insurance and Lender-of-Last-Resort Liquidity

Notwithstanding ongoing implementation of recent financial regulatory reforms, some policymakers are once again questioning whether large banks play an essential role in the U.S. financial system or whether they exist in their current form in part because of competitive distortions resulting from government policies. Critics of large banks argue that there is an ongoing “too-big-to-fail” (“TBTF”) problem, and contend that explicit or implicit government policies confer on large banks an unfair competitive advantage relative to smaller institutions or an unfair economic advantage more generally. Some suggest that a competitive advantage stems from a lingering market perception that large banks are likely to be “bailed out” by the U.S. government should they become insolvent, despite the express statutory prohibition on government bail outs introduced by the Dodd-Frank Act. Other critics assert that large banks benefit disproportionately from federal deposit insurance and liquidity programs, or from the various types of extraordinary support provided by the U.S. government in response to the historic challenge facing the economy in 2008-2009. Arguments along these lines have been invoked in support of aggressive proposals to “break up” large banks on account of their size, either directly or through indirect measures.

NA

The Clearing House

January 2014

I didn't find this helpful.This was helpful. Please let us know if you found this article helpful.
Loading...