The Region

Addressing TBTF When Banks Merge: A Proposal - In Brief

Gary H. Stern | President, 1985-2009
Ron J. Feldman | First Vice President

Published September 1, 2005  | September 2005 issue

Fewer bank bailouts

  • A proposed bank merger and acquisition (M&A) provides a unique opportunity to address too big to fail concerns—the problem of big banks taking undue risks due to creditors’ perceptions that government policymakers will bail them out to prevent spillovers from bank collapse.

  • Under a preliminary reform proposal, the Federal Reserve, the Federal Deposit Insurance Corporation and the U.S. Treasury would, as part of the review process for large bank M&As, be required to report on how they are putting large bank creditors at risk of loss.

  • Linking M&A reviews to TBTF management reviews would have numerous benefits, including a focused occasion to reduce bank creditor expectations of government bailouts.

Addressing TBTF When Banks Merge: A Proposal  [Complete article]