How did a bank’s Too-Big-To-Fail status impact its risk attitude during the Global Financial Crisis and has regulatory intervention rectified these issues suitably?Tools Simmons, Ben Oren (2020) How did a bank’s Too-Big-To-Fail status impact its risk attitude during the Global Financial Crisis and has regulatory intervention rectified these issues suitably? [Dissertation (University of Nottingham only)]
AbstractThe issues surrounding Too-Big-To-Fail (TBTF) banks has been unrelenting. This dissertation conducts detailed analysis surrounding their origins, and the reasons for which their existence has been permitted. This is despite the extreme disruptions that they caused during the Global Financial Crisis (GFC). This involves investigating whether TBTF banks intentionally acted differently and why this has not been rectified by regulation and other forms of deterrents. Chronologically, an investigation will be conducted into the origins of the TBTF nomenclature, followed by an assessment of the literature which investigated whether banks intentionally increased their size to abuse the intrinsic benefits TBTF banks receive. Additionally, a highlighted theme of investigation surrounds the increasing need to stem the moral hazard problem innate with the abuse of power, through the creation of Mortgage-Backed Securities rife with subprime mortgages. A primary case study involves Lehman Brothers, whom whilst considered TBTF, was not bailed out. In the meantime, banks such as Bear Stearns who behaved in a similar way, were bailed out and sold to JP Morgan. This led to investigations regarding the vehicles used to aid the recovery of the GFC, primarily TARP and ‘Bad Banks’. As my research demonstrates, both these fell short in providing adequate recovery for the economy, in addition to the Basel II Accords which were in place at the time. The resulting research aims to suggest whether regulation enacted post-GFC, namely the Basel III Accords and Dodd-Frank Act, as well as punishments and fines, has sufficiently eradicated the perplexing TBTF issue.
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