Aufsätze Ökonomik

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Aufsätze Sozialethik


Prof. Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.

Abhandlungen über Johann Heinrich Jung-Stilling

Nachtodliche Belehrungen zur Ökonomik

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Nachtodliche Belehrungen zur Philosophie

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Size confidence (too big to fail principle)

In financial markets, the expectation of market participants that very large banks – especially systemic banks, sifis – will be supported by government aid in the event of crises. – This is seen as a particular moral hazard risk, because the large banks in question may be inclined to take higher risks. This is also a decisive reason why the supervisory authorities generally keep a close eye on big banks, why the European banking supervisory authority, according to its statutes, primarily examines systemic banks, and why any state guarantee for a bank is seen as distorting competition. – On the other hand, institutions operating on a pan-European or even global scale generally enjoy a competitive advantage over smaller banks due to the expectation of a bail-out in the event of a crisis. They can refinance at lower interest rates, which alone translates into billions of euros annually in their favor. On closer inspection, this is a state subsidy at the expense of smaller institutions. Competition on the financial market is distorted in this way. For this reason, many economists propose introducing laws limiting the size of institutions. – However, this is opposed by the fact that some customers only commission systemic banks with global operations to provide services in certain business areas. Therefore, if limiting size is an objective, it must apply equally to all countries. Achieving this seems all but impossible, at least today, given the political interests of individual states. – See bank, systemic, banking supervision, European, Bear Stearns bankruptcy, crash, case-by-case decision, financial market interdependence, guarantor liability, G-Sifi, Gibrat rule, gigabank, big bank, big bank trust, size effects, cobra effect, Lehman bankruptcy, megamania, mandatory convertible bond, risk shield law, rush to exit, debt bomb, single master liquidity conduit, too big to fail principle, subsidiarity principle, trust. – Cf. Monthly Report of the Deutsche Bundesbank of October 2005, p. 74 f. (there in note 2 also reference to important study), Financial Stability Report 2012, p. 98 (further dangers from the collapse of globally networked institutions).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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