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The Hazards of Bank Bailouts
Brown Books Publishing Group
July 2009
On Sale: June 26, 2009
240 pages ISBN: 081570304X EAN: 9780815703044 Paperback
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Non-Fiction
The potential failure of a large bank presents vexing
questions for policymakers. It poses significant risks to
other financial institutions, to the financial system as a
whole, and possibly to the economic and social order. Because of such fears, policymakers in many countries -
developed and less developed, democratic and autocratic-
respond by protecting bank creditors from all or some of
the losses they otherwise would face. Failing banks are
labeled too big to fail (or TBTF). This important new book
examines the issues surrounding TBTF, explaining why it is
a problem and discussing ways of dealing with it more
effectively. Gary Stern and Ron Feldman, officers with the
Federal Reserve, warn that not enough has been done to
reduce creditors' expectations of TBTF protection. Many of
the existing pledges and policies meant to convince
creditors that they will bear market losses when large
banks fail are not credible, resulting in significant net
costs to the economy. The authors recommend that
policymakers enact a series of reforms to reduce
expectations of bailouts when large banks fail.
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