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The current bail-in design does not resolve the too-big-to-fail problem

Farmer, J. Doyne, Goodhart, C. A. E. and Kleinnijenhuis, Alissa M. (2021) The current bail-in design does not resolve the too-big-to-fail problem. VoxEU.

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Abstract

Since the Great Financial Crisis, bail-in has been introduced as an approach to address too-big-to-fail and contagion risk problems. This column uses a multi-layered network model of the European financial system to study the implication of bail-in design on financial stability. It shows that early implementation of a bail-in and stronger bank recapitalisation lead to lower contagion losses. However, current bail-in design seems to be in the region of instability and the political economy of incentives makes reforms unlikely in the near future.

Item Type: Article
Official URL: https://voxeu.org/
Additional Information: © 2021 The Authors
Divisions: Financial Markets Group
Subjects: H Social Sciences > HG Finance
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HB Economic Theory
Date Deposited: 14 Oct 2021 10:24
Last Modified: 11 Nov 2021 00:02
URI: http://eprints.lse.ac.uk/id/eprint/112433

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