Harry Bosch
Contributor
.Here is a primer Too_big_to_fail.Well, first off, how do you define "too big to fail"?
So? If a bank is "too large to fail", then its incentives for prudent lending are reduced since it knows it will be bailed out. If other countries wish to bear the costs of having banks that are "too big to fail", then that is good for our economy since we will not bear the costs of their bailouts.I work for a small regional bank, so I should favor my competitors getting hurt. But I care about the economy as well. Just like any corporation, as a company grows it's economies of scales grows, it's OH decreases as a percentage of sales, and etc. Larger banks can offer greater pricing, better products. Larger corporations like Nike and Intel need larger banks to handle their work. A smaller bank can't handle a large corporation like that. Therefore, if we artificially hack off the larger banks, Intel and Nike will move to larger international banks like HSBC and etc.
We did not have to "bail out" the large banks in 2009. If TARP had not been implemented, certainly at least another 100 smaller banks would have failed. Chase and BofA might have failed. US Bank and Wells Fargo (conservative banks that didn't do subprime loans) would have survived. Having said that, I believe that TARP restored confidence in the economy that allowed us to climb out of the recession earlier.