Saturday, May 23, 2015

Too big to fail

The idea that a business has become so large and ingrained in the economy that a government will provide assistance to prevent its failure. "Too big to fail" describes the belief that if an enormous company fails, it will have a disastrous ripple effect throughout the economy.

There are some 5,500 banks in the U.S. The biggest six have $10 trillion in assets, almost twice as much as the next 30 combined. The six biggest banks in the U.S. and Europe have increased their assets almost five-fold since 1997. That’s a lot of money in not too many hands. It might even mean that those banks are still too big to let fail, as governments decided during the panic of 2008. Anger soared over the disbursement of $700 billion to save banks while homeowners and businesses went under. Global regulators have been working ever since to make it possible for even the biggest financial institutions to close their doors without triggering an economic meltdown. There’s plenty of skepticism about whether they’ve succeeded.

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