Chapter 14: using bankruptcy law to solve too-big-to-fail

The threat to society of institutions that are too big to be allowed to fail should be solved through a predictable legal framework, rather than punitive regulation. David Rowe commends a group of academics working on the details of such a framework

In April 2010, I argued that efforts to eliminate the too-big-to-fail problem had been overly focused on minimising the likelihood rather than the severity of such failures (Risk April 2010, page 73). More restrictive and more complex capital requirements, new liquidity rules and a flood of new and detailed provisions surrounding stress testing and credit procedures are all designed to prevent systemically important financial institutions (Sifis) from imploding. Harsh experience should tell us