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.

Seminar paper from the year 2011 in the subject Economics - International Economic Relations, grade: 1,0, Johannes Gutenberg University Mainz (Professur für Volkswirtschaftslehre, insb. Wirtschaftspolitik und Internationale Makroökonomik Prof. Dr. Beatrice Weder di Mauro ), language: English, abstract: As a result of the worldwide financial crisis which occurred in 2007, an intensive discussion about preventing possible future crisis like that has arisen. One of the key points in these debates is the necessity to protect the economy from negative effects of failing financial institutions. These can be dramatic what you can see by reflecting the facts of the recent crisis that is characterized by big bank failures and so caused domino effects. Thus it is very important to reduce the so called systemic relevance of financial institutions. But the design of a framework that contains systemic risk effectively is not just a simple task, because you have to consider a couple of factors in view of creating an effective solution. This paper presents a short overview of the issue of hazard that is caused by systemic relevant institutions (SIFI) and the content of the actual debate by illustrating the costs the institutions cause and the presentation and evaluation of several approaches of economic experts with regard to the topic of reducing systemic relevance. Finally the paper tries to draw a conclusion.