Too Big to Fail
Financial Globalisation
Essay Topic: Does the term “too big to fail” adequately explain why many financial institutions continue to encourage risk-taking activities by their executives? Discuss.
The term ‘too big to fail’ is the idea that a business has become so large and generally does business with many companies for suppliers and services. The company will ingrain in the economy and others company will rely on it for portions of income. If it facing financial problem may cause of failure, the government will provide assistance to prevent its failure. Therefore, if the cost of a bailout is less than the cost of the failure to the economy, a government may decide that a bailout is the most cost-effective solution. "Too big to fail" describes the belief that if an enormous company fails, it will have a disastrous ripple effect throughout the economy. (Unknown, 2013) (Amadeo)
There is a general consensus amongst regulators that the too big to fail banks have gotten ‘too big to jail’. The sizes of the banks have become so systemically important that it is a national risk if government has allowed it to fall. US Attorney General Eric Holder admitted that the big size financial institutions have created complexity of their structures. The U.S. Department of Justice (DOJ) has given up on trying charging the bankers and operators of these financial institutions in matters of corruption or criminal malfeasance. The reason given by them is that if they bringing down any of these huge banks or businesses, it could cause crash the economy. For example, according to the senior U.S. Senator, Elizabeth Warren that even though the bank HSBC had admitted to laundering over 800 million dollars for drug cartels, but they paid the largest fine in history of $1.9 billion in relation to money launder instead of the banker being charged and jailed. From the action of DOJ, it seems that the only way to punish or the authorities can enforce is just the giving out fines as
Essay Topic: Does the term “too big to fail” adequately explain why many financial institutions continue to encourage risk-taking activities by their executives? Discuss.
The term ‘too big to fail’ is the idea that a business has become so large and generally does business with many companies for suppliers and services. The company will ingrain in the economy and others company will rely on it for portions of income. If it facing financial problem may cause of failure, the government will provide assistance to prevent its failure. Therefore, if the cost of a bailout is less than the cost of the failure to the economy, a government may decide that a bailout is the most cost-effective solution. "Too big to fail" describes the belief that if an enormous company fails, it will have a disastrous ripple effect throughout the economy. (Unknown, 2013) (Amadeo)
There is a general consensus amongst regulators that the too big to fail banks have gotten ‘too big to jail’. The sizes of the banks have become so systemically important that it is a national risk if government has allowed it to fall. US Attorney General Eric Holder admitted that the big size financial institutions have created complexity of their structures. The U.S. Department of Justice (DOJ) has given up on trying charging the bankers and operators of these financial institutions in matters of corruption or criminal malfeasance. The reason given by them is that if they bringing down any of these huge banks or businesses, it could cause crash the economy. For example, according to the senior U.S. Senator, Elizabeth Warren that even though the bank HSBC had admitted to laundering over 800 million dollars for drug cartels, but they paid the largest fine in history of $1.9 billion in relation to money launder instead of the banker being charged and jailed. From the action of DOJ, it seems that the only way to punish or the authorities can enforce is just the giving out fines as