by James R. Barth, Apanard Prabha
March 11, 2013
Working Paper Series
The belief that some banks are too big to fail (TBTF) became reality during the financial crisis of 2007–2009 when the biggest banks in the United States were bailed out. Since then, big banks have grown much bigger and have become increasingly complex. This development has led to far greater attention on the need to resolve the TBTF problem. This paper examines the way in which the Federal Deposit Insurance Corporation (FDIC) has resolved troubled banks both historically and in the current TBTF situation in which the United States now finds itself. The paper examines post-crisis regulatory reform by focusing on the new orderly liquidation authority the Dodd-Frank Act provides to the FDIC to serve as the receiver for big banks whose failure poses a significant risk to the country’s financial stability. We assess whether this process will indeed eliminate the TBTF problem.