The myth of too big to fail

List of Figures

Preface

List of Abbreviations

1. The Too Big to Fail Doctrine

1.1. The meaning and origin of TBTF

1.2. Rewarding recklessness: An anecdote

1.3. TBTF: A privilege of banks and other financial institutions

1.4. The pros and cons of financial regulation

1.5. TBTF as an extension of the banking safety net

2. The History of TBTF

2.1. Financial crises and regulation

2.2. The history of deregulation

2.3. Evolution of the TBTF doctrine

2.4. TBTF rescue during the global financial crisis

2.5. Has the TBTF problem become worse?

3. Some Notorious TBTF Cases

3.1. Continental Illinois

3.2. Long-Term Capital Management

3.3. The Royal Bank of Scotland

3.4. Northern Rock

3.5. American International Group

3.6. Citigroup

3.7. Lehman, Merrill and Bear

4. Far Too Big and Politically Connected

4.1. No longer humble intermediaries

4.2. Internalization and "King of the Mountain"

4.3. The quest for market power

4.4. Exploiting the economies of scale and scope

4.5. A reality check

4.6. The big motive: Mission TBTF

4.7. Growing big: A recap and evidence

4.8. The growing political influence of financial institutions

4.9. Victims or villains?

5. The Jewel in the Crown

5.1. Some facts and figures

5.2. Financial markets and financial engineering

5.3. The government's love affair with the financial sector

5.4. The role of deregulation

5.5. The role of academia

6. Worthy of Bailout: To be or Not to be?

6.1. Cherry picking?

6.2. Size as a determinant of systemic importance

6.3. Contagion as a determinant of systemic importance

6.4. Correlation as a determinant of systemic importance

6.5. Concentration as a determinant of systemic importance

6.6. Conditions/context as a determinant of systemic importance

6.7. A classification scheme

6.8. So, does size matter?

7. Why Too Big to Fail is Too Outrageous to Accept

7.1. Any argument for TBTF?

7.2. Argument 1: The difficulty of determining TBTF institutions

7.3. Argument 2: Diversion of resources away from more beneficial uses

7.4. Argument 3: Boosting rent-seeking unproductive activities

7.5. Argument 4: TBTF creates significant moral hazard

7.6. Argument 5: Financial burden on future generations or hyperinflation

7.7. Argument 6: Saving a minority at the expense of the majority

7.8. Argument 7: Rewarding recklessness and hampering market discipline

7.9. Argument 8: TBTF as a source of poor performance

7.10. Argument 9: TBTF creates distortions

7.11. Argument 10: TBTF makes big institutions even bigger

7.12. Argument 11: Boosting the financial sector even further

7.13. Arguments against for all tastes

8. Dealing with the Menace of TBTF

8.1. Why TBTF should be tossed in the dustbin

8.2. The million dollar question

8.3. Fighting the obesity of financial institutions

8.4. Appropriate and effective regulation

8.5. Allowing failing financial institutions to fail

9. Forget about Basel II

9.1. Basel II in the aftermath of the global financial crisis

9.2. The Basel Accords

9.3. Basel II as a form of capital-based regulation

9.4. Basel II: The wrong kind of regulation

9.5. The treatment of liquidity and leverage

9.6. The use of internal models

9.7. Risk sensitivity and procyclicality

9.8. Reliance on rating agencies

9.9. The implementation problems

9.10. The exclusionary and discriminatory aspects of Basel II

9.11. The one-size-fits-all problem

9.12. Basel II as a pure compliance exercise

9.13. Concluding remarks

10. TBTF: Where Do We Stand?

10.1. The costs and benefits of TBTF

10.2. Circumventing the TBTF problem: Why and how?

10.3. Regulation: The way forward

10.4. No more business as usual

10.5. Basic finance without TBTF

References

Also / Imad A. Moosa

Index