Too Big To Fail - "Too Big To Fail Is Too Big"

"Too Big To Fail Is Too Big"

More than fifty economists, financial experts, bankers, finance industry groups, and banks themselves have called for breaking up large banks into smaller institutions. (See also Divestment.)

Mervyn King, the governor of the Bank of England, called for banks that are "too big to fail" to be cut down to size, as a solution to the problem of banks having taxpayer-funded guarantees for their speculative investment banking activities. "If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure."

Alistair Darling disagreed; "Many people talk about how to deal with the big banks – banks so important to the financial system that they cannot be allowed to fail. But the solution is not as simple, as some have suggested, as restricting the size of the banks". As well, Alan Greenspan said that "If they're too big to fail, they're too big," suggesting U.S. regulators to consider breaking up large financial institutions considered "too big to fail." He added, "I don’t think merely raising the fees or capital on large institutions or taxing them is enough ... they'll absorb that, they'll work with that, and it's totally inefficient and they’ll still be using the savings."

Some critics have argued that "The way things are now banks reap profits if their trades pan out, but taxpayers can be stuck picking up the tab if their big bets sink the company." Additionally, as discussed by Senator Bernie Sanders, if taxpayers are contributing to save these companies from bankruptcy, they "should be rewarded for assuming the risk by sharing in the gains that result from this government bailout."

In this sense, Alan Greenspan affirms that, "Failure is an integral part, a necessary part of a market system." Thereby, although the financial institutions that were bailout were indeed important to the financial system, the fact that they took risk beyond what they would otherwise, should be enough for the Government to let them face the consequences of their actions. It would have been a lesson to motivate institutions to proceed differently next time.