Tuesday, February 16, 2010

Open post: limiting bank size

For the economics department debate, I am currently amidst researching ideas on why bank size should be limited in the U.S., after the 2008/9 financial crisis. The other students I am working with and I are in the process of formulating arguments that favor the idea of not allowing banks to grow too large (whatever that subjective amount may be). We are trying to break down this argument from a few different angles: history, the market, the consumers, and the bankers. That is to say we will look at historical precedence of regulation in the U.S., consumer protection from banks with too great of market share and power, the efficiency of the market in having many smaller banks competing, and incentives/moral hazard issues with having too large of institutions. We are currently looking into a few different lenses of entry into the issue, like the Efficient Market Hypothesis.

For this task, I want to open up our debate topic to anyone that reads my blog and has a working knowledge of economic theories regarding bank regulation. What evidence is there, empirically and in theory, for or against the regulation of bank size?

1 comment:

  1. The only theoretical argument I can think of would be a Public Choice one: big banks in our current political system seem to feel more encouraged to be reckless because they know they won't be allowed to fail.

    I don't think there's anything else in basic price theory to argue against the subjective size of any firm.