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Bad Regulation: Too Big to Fail, Bail-Out and Bail-In

In: Good Regulation, Bad Regulation

Author

Listed:
  • Imad A. Moosa

    (Royal Melbourne Institute of Technology (RMIT))

Abstract

As we saw in Chapter 2, a (flawed) argument for regulation is that the government should intervene to prevent “important” enterprises from failure—this is the TBTF argument. In this chapter we address the actions taken by regulators to save failing financial institutions that have the TBTF status by bailing them out (using taxpayers’ money) or bailing them in (using depositors’ money). This is what is meant by “bad regulation” in the heading of this chapter. However, regulation aimed at mitigating the TBTF problem by preventing the occurrence of a TBTF situation is good regulation. In fact, it will be argued that good regulation is required to deal with the TBTF problem.

Suggested Citation

  • Imad A. Moosa, 2015. "Bad Regulation: Too Big to Fail, Bail-Out and Bail-In," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Good Regulation, Bad Regulation, chapter 10, pages 192-211, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-1-137-44710-4_10
    DOI: 10.1057/9781137447104_10
    as

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