Due to the NCUA's unstated
too big to fail policy, shares in corporates were guaranteed, and the four failures were put on business life support.
below, however, the current Too Big To Fail policy actually does convey
The Too Big To Fail policy continued in this indeterminate form
Too Big To Fail policy into the ambiguous "too important, too
(2) Further, operating under a too big to fail policy created a dilemma for bank regulatory agencies, which had to either leave large depositors at small banks uninsured and create an artificial incentive for large deposits to be shifted to too big to fail banks or cover all deposits at all banks, further reducing market discipline at small banks and increasing the cost of resolving small hank failures.
Two of the goals of FDICIA are to reduce both the potential for systemic problems and bank regulatory agencies' incentives to follow a too big to fail policy. Having given a mandate to banking agencies to minimize FDIC losses, the act's prompt corrective action provisions provide a structured way of addressing a problem bank.
According to some preliminary analysis, a too big to fail policy may not be needed to protect financial markets.
(9) However, implementing a too big to fail policy would protect bank borrowers only to the extent that doing so would prevent contagious runs on viable banks.
If policymakers were to conclude that a too big to fail policy is necessary to protect banks that are financial market makers, there would be implications for securities firms that have a similar presence in many financial markets.
Two common themes run throughout this review of the risk of systemic problems in the absence of a too big to fail policy prior to FDICIA.
