What does it mean for the financial system to contain banks deemed as too-big-to-fail? Discuss in the context of the 2007/08 global financial crisis and its aftermath.

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12 Apr 2022 Homework Help

What does it mean for the financial system to contain banks deemed as too-big-to-fail? Discuss in the context of the 2007/08 global financial crisis and its aftermath.

Contemporary Issues in Finance

Assignment 2

Weighting: 50% of the overall marks

Learning outcomes assessed

Knowledge and understanding

To be able to analyse a number of key recent developments in the international financial system
To be able to assess critically the implications of such developments for established financial theories
To be able to set current financial developments in an appropriate historical context
To be able to appreciate the linkages between contemporary international financial developments and the shaping of national financial systems

Professional skills

To be able to gather and analyse appropriate data in order to test competing hypotheses concerning contemporary financial developments
To be able to apply theoretical models drawn from their study of finance to practical problems drawn from contemporary experience
To be able to appreciate the variety of competing theoretical and practical approaches that can be taken with regard to financial issues
To be able to evaluate the impact of regulatory proposals in the area of finance on a wide variety of market participants

Transferable skills

Communication
Problem solving

Task

What does it mean for the financial system to contain banks deemed as too-big-to-fail? Discuss in the context of the 2007/08 global financial crisis and its aftermath.

Guidance:

Start by considering which banks are classified as too-big-to-fail at the global level, particularly their countries of origin. Reflect over the reasons why did too-big-to-fail banks come under the spotlight after the crisis of 2007/08. Discuss the literature, including the views of financial regulators. Examine the regulatory implications for banks classified as too-big-to-fail. Look for evidence on the evolution of the size of some of these banks since 2008 (no less than two, no more than five).

Other notes: for this essay you can consider the terms too-big-to-fail (TBTF) and global systemically-important banks (G-SIBs) as synonyms.

Word limit

The maximum number of words is 1,250 (excluding graphs, tables, appendices, reference list/bibliography). There is no 10% margin to be used to exceed the word limit. Words that exceed the word limit will not be marked.

Suggested reading list

(This is just a guide, you do not need to use all the listed readings in your essay. For a good mark you should also complement the below by considering additional academic and non-academic resources, such as newspaper articles).

Beccalli, E., M. Anolli, and G. Borello. 2015. ‘Are European Banks Too Big? Evidence on Economies of Scale.’ Journal of Banking and Finance 58: 232–246. https://www.sciencedirect.com/science/article/abs/pii/S0378426615001132

Dymski, G. 2011. ‘Genie Out of the Bottle: The Evolution of Too-Big-To-Fail Policy and Banking Strategy in the US.’ Post-Keynesian Study Group Working Paper. https://www.postkeynesian.net/downloads/soas12/Dymski-Banking-and-TBTF.pdf

Financial Stability Board. 2013. ‘Progress and Next Steps Towards Ending “Too-Big-To-Fail” (TBTF). Report of the Financial Stability Board to the G-20.’ September 2. Accessed July 22, 2019. http://www.fsb.org/wp-content/uploads/r_130902.pdf?page_moved=1

Haldane, A. 2012. ‘On Being the Right Size.’ Speech given at the Institute of Economic Affairs’ 22nd Annual Series, The 2012 Beesley Lectures, London, October, 25. https://www.bankofengland.co.uk/-/media/boe/files/speech/2012/on-being-the-right-size.pdf?la=en&hash=90ABC57DE1144965CD6E693C6FEFE2430633EBE9

Independent Commission on Banking. 2011. ‘Final Report Recommendations.’ Independent Commission on Banking. September 12. London: Domarn Group. https://webarchive.nationalarchives.gov.uk/ukgwa/20120827143059/http://bankingcommission.independent.gov.uk///

Kozubovska, M. 2017. ‘Breaking Up Big Banks.’ Research in International Business and Finance 41: 198–219. https://www.sciencedirect.com/science/article/abs/pii/S0275531917300855?via%3Dihub

Liikanen, E., H. Bazinger, J. M. Campa, L. Gallois, M. Goyens, J. P. Krahnen, M. Mazzucchelli, et al. 2012. ‘High-Level Expert Group on Reforming the Structure on the EU Banking Sector.’ European Commission Report. October 2. Brussels. https://ec.europa.eu/info/publications/liikanen-report_en

O’ Hara, M., and W. Shaw. 1990. ‘Deposit Insurance and Wealth Effects: The Value of Being “Too Big to Fail”.’ Journal of Finance 45 (5): 1587–1600. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261.1990.tb03729.x

Taibbi, M. 2012. ‘How Wall Street Killed Financial Reform.’ Rolling Stone. May 10. Accessed July 22, 2019. https://www.rollingstone.com/politics/politics-news/how-wall-street-killed-financial-reform-190802/.

Other resources:

For the list of global too-big-to-fail banks see the corresponding webpages of the Financial Stability Board: https://www.fsb.org.

For data on the size and operations of too-big-to-fail banks, you need to look for their annual reports. JP Morgan’s annual report for 2020 for example can be found here https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chase-and-co/investor-relations/documents/annualreport-2020.pdf. Typically, you would approximate the size of a bank by considering its total asset size. To contrast the evolution of bank size since the crisis you can stick to the consideration of two specific years, e.g. 2008 and 2020. Just make sure you are consistent (i.e. use the same two years for your analysis of all banks).