The social costs and benefits of too-big-to-fail banks: A "bounding" exercise

John H Boyd, Amanda Heitz

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

While the policy of too-big-to-fail has received wide attention in the literature, there is little agreement regarding economies of scale for financial firms. We take the stand that systemic risk increases when the larger players in the financial sector have a larger share of output. Calculations indicate that the cost to the macro-economy due to increased systemic risk is always much larger than the potential benefit due to scale economies. When distributional and intergenerational issues are considered, the potential benefits to economies of scale are unlikely to ever exceed the potential costs due to increased risk of a banking crisis.

Original languageEnglish (US)
Pages (from-to)251-265
Number of pages15
JournalJournal of Banking and Finance
Volume68
DOIs
StatePublished - Jul 1 2016

Keywords

  • Banking
  • Financial crisis
  • Financial intermediation

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