2) Too Big To Fail: Why Megabanks Have Not Become Smaller Since the Global Financial Crisis?

Authors: Stefanos Ioannou*, University of Oxford, Dariusz Wójcik , University of Oxford , Gary A. Dymski , University of Leeds
Topics: Economic Geography, Political Geography, Business Geography
Keywords: Too-Big-To-Fail, Investment Banking, Financial Regulation, Financial Consolidation, Quantitative Easing, Bank Lobbying
Session Type: Paper
Day: 4/6/2019
Start / End Time: 1:10 PM / 2:50 PM
Room: Chairman's Boardroom, Omni, East
Presentation File: No File Uploaded

Ten years after the global financial crisis, what has happened to the “too big to fail” (TBTF) banks whose reckless behavior was among its preconditions, but which received public support and guarantees in the midst of that crisis? Insofar as this TBTF status both helped create the crisis and then imposed costs on the rest of society, we would expect these banks to have shrunk. We investigate the post-crisis evolution of a sample of 26 global banks – all currently listed as TBTF– and find that the overall size of these banks has hardly recorded any substantial change. However, there is no sense of urgency in the flourishing post-crisis literature on TBTF banks about the need to shrink TBTF banks; the prevalent view therein is that if properly regulated, the risks that arise from a TBTF-dominated financial system are manageable. We show that this view rests on the same overly-narrow theoretical underpinnings whose flaws as a guideline for regulation were exposed in the crisis. We argue that TBTF banking is embedded in a set of self-reinforcing policies – consolidation, balance-sheet support through quantitative easing, favorable regulations, bank lobbying, and geo-economic and geo-political considerations – that explain both why these TBTF banks have not shrunk post-crisis and why they remain a threat to financial stability, well after the lessons of the last global financial crisis should have been learned.

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