The world financial and economic crisis brought out an acute problem so called “too big to fail” to world community.
It is not a secret that sometimes mistakes in business may lead to bankruptcy. Someone fails and leave a market, and another one soon takes his place. Life is life. The classic theory of a free market does not envisage government interference in this natural process. A market regulates itself. If you open a shop and all money invest in non-liquid assets, you will fail. Government will not rescue your property. And it is true: business is private, and you may do it at your own risk.
Everything stated above is true also regarding such financial institutions as banks. Banking business is only one of the type of business. If a private bank ruins, it seems that government doesn’t matter. But this crisis showed that some banks are so large that their bankruptcy endangers the whole national and even world economy. As a results mistakes of managers of one private company may create problems for the whole planet. And then government can’t hold itself aloof. If a problem bank becomes a large financial institution with a big system, it must be supported by government. It is too big to fail.
During this crisis governments of many developed countries have to support problem financial institutions. Taking into account a fact that the European bank sector is still in difficult financial situation, we can’t say that the danger is over. But even if you think that the worse is behind, is it guaranteed that in five (ten, twenty) years problems of just another bank from the group “too big to fail” will not cause a chain reaction of panic, bankruptcy and support? Do taxpayers in the whole world really have to submit themselves to the fact that their money will be spent on supporting failure of someone’s business?
The problem of “too big to fail” must be solved. There are different ways. It can be established limited size of banking institution growth, and if a bank reaches it, it must be divided. Large banks can be kept under supervision according to special rules. But there were no serious steps taken in order to resolve this problem. The Head of the United States FRS Ben Bernanke and other representatives of the Federal Reserve System incessantly call upon this problem. The Head of the IMF Christine Lagarde also supports them. She offers to discuss this problem on world level. She also named the main hindrance to a reform – resistance of “circles with interests at stake”
World financial and economic crisis is not a natural calamity or sheer luck. It is a result of defect in the system. And if this system is not reformed, such problems will be repeated. Too big to fail must become too big to reform.