The Evolution of the Big to Fail Doctrine

Authors:

Pages: 58-66

Abstract:

The current paper investigates the reflection of the global financial crisis on the TBTF doctrine. The global financial crisis showed that the TBTF doctrine is one of the main reasons for turning the economic turbulences into a global financial crisis. The informal state support which is provided in cases of financial difficulties for systemically-important banks and the probability for bankruptcy stimulate bank managers to undertake more risk, dilute responsibility, encourage the creation of sophisticated financial products, which are offered to customers that do not have the adequate knowledge to understand their risk characteristics. Providing of huge resources by the governments in many countries to systemically-important banks during the global financial crisis shows how serious the problems arising from the TBTF doctrine are. The current research investigates the development of the TBTF doctrine and how it changed after the global financial crisis.

Keywords:

TBTF doctrine, systemically-important banks, size, global financial crisis, banks.

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