Question

Too-big-to-fail is a key issue in global financial crisis 2008. Do you think whether this issue is fully resolved by regulatory bodies? Why or why not?

Answer 1

Too-big-to-fail has always been a key issue in the financial stability of the various nations across the world. This issue has always posed a systemic threat to the financial stability of a nation and sometimes the stability of nations across the world and it continues to do so. The sytemic nature of the global financial crisis and the intrinsic involvement of the Global Systemically Important Banks (GSIBs) or the "Too-Big-To-Fail entities" had a huge impact on the regulations imposed by the regulatory bodies in preventing a catastrophe of such a magnitude ever again.

The Too-Big-To-Fail reforms were widely accepted by the G20 countries after the 2008 global financial crisis and have been implemented in Financial Stability Boards' jurisdictions ever since. These reforms have reduced the systemic and moral hazard risks associated with systemically important banks, as well as their broader effects on the financial system over the years.

1. Systemically important banks are now beter capitalized and risk-assed leveraged. The capital ratio of these banks has doubled.

2. Many Financial Stability Boards' jurisdications in the G-20 countries have introduced comprehensive measures to deal with banks that are in stress.

3. Credit ratings of a lot of these institutions has improved.

4. The dependence on these institutions has decreased and various other market participants have stepped into areas where large banks used to explecitely operate in.

However, there are certain domains that have yet to be improved in this aspect:

• Obstacles associated with the resolution of banks are still to be fully addressed.

• The disclosure of perfect information is an ideal goal still to be worked on.

And the ever dynamically changing structure of the financial system and its ever increasing affect on the economy of a country and the welfare of its citizens obligate various authorities all over the world to closely monitor the activities of these Too-Big-To-Fail entities and the inevitable linkages and dependencies of these entities.