There is a growing concern among tax payers that ‘too big to fail’ (TBTF) creates moral hazard problems and leads to excessive risk-taking and reckless investment decisions by large financial institutions. This unfortunately exposes the tax payer and the economic system to excessive cost. What are the issues surrounding “too big to fail”? Is it possible for the legislative authority to simply “outlaw” TBTF institutions? Why or why not?

There is a growing concern among tax payers that ‘too big to fail’ (TBTF) creates moral hazard problems and leads to excessive risk-taking and reckless investment decisions by large financial institutions. This unfortunately exposes the tax payer and the economic system to excessive cost. What are the issues surrounding “too big to fail”? Is it possible for the legislative authority to simply “outlaw” TBTF institutions? Why or why not?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter18: Debates In Macroeconomics Over The Role And Effects Of Government

Section: Chapter Questions

Problem 8QP

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