“Too Big to Fail” Is Too Costly to Continue

Abstract

Finance is central to the growth and development of the world economy, and a relatively small number of global systemi-cally important financial institutions (G-SIFIs) are central to finance. But this interdependency is dangerous. The failure of one or more G-SIFIs could disrupt financial markets and put the world economy into a tailspin. Even if such a decline could be arrested, it may take many years before output again reaches its pre-crisis level and many more before it attains levels consistent with the pre-crisis trend of growth rates. Thus, crises can be quite costly, particularly if they permanently scar the economy (see Figure 1.1).¹