Too big to rescue

By Felix Salmon
June 19, 2009

Paul Krugman is surely right about this:

I think of the pursuit of a world in which everyone is small enough to fail as the pursuit of a golden age that never was. Regulate and supervise, then rescue if necessary.

There will always be too-big-to-fail banks, no matter where the current debate leads us. When I say that banks’ balance sheets should be capped at $300 billion, I’m not for a minute saying that $300 billion is small enough to fail; I’m just saying that such banks are small enough to rescue. Too big to fail we can cope with, by rescuing banks rather than letting them fail. Too big to rescue we can’t cope with. And right now, the big four banks in the US are too big to rescue. Which is scary.

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