"Too Big to Fail" is a government policy that has evolved over the years, and ultimately culminated in the massive bank bailouts in the wake of the financial crisis. The premise behind the policy is that some financial institutions are so large that their failure would be catastrophic for the economy as a whole, and thus can not be allowed to collapse into bankruptcy. In a classic case of a dog chasing its own tail, "Too Big to Fail" is itself a prime motivator that fostered oversize banks to begin with--oversize, that is, in relation to what a free market would allow.
So, it is good news that a move is afoot in Washington to end this policy. But, in their infinite "wisdom," the politicians are simultaneously seeking the power to limit banks' size, thus replacing one bad policy with a worse one. My latest post at The Objective Standard blog, End "Too Big to Fail," not "Too Big" Banks, covers this issue.
Related Reading:
Capitalists in a Statists's Land of Oz
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