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In: Economics

What are the costs and benefits of too-big-to-fail policy?

What are the costs and benefits of too-big-to-fail policy?

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Expert Solution

Answer : *The benefits of a too-big-to-fail policy is that it makes bank less expected during financial crisis .

* The costs is increases the incentives for moral hazard by big banks ,who know that depositors do not have incentives to monitor the banks’risk-taking procedure.

*So it is an unfair policy because it puts an disadvantage against small banks .

Rahul Sunny answered 2 years ago
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