Systemically important banks and how to deal with them
Stand: 01 March 2011
The financial crisis has shown just how important a stable global financial system is. The failure of Lehman Brothers in September 2008 made clear that the financial distress of a single market participant can cause even global turmoil. This is why the state is forced to weigh up whether letting an institution fail or rescuing it is preferable in macroeconomic terms. As a result, systemically important financial market participants enjoy an implicit state guarantee that they will be bailed out - generally with the taxpayer's money - if they become distressed. During the crisis, both banks and insurance companies were consequently supported through huge capital injections and guarantees.
Systemic importance poses two main problems: firstly, the implicit state guarantee creates incentives for excessive risk-taking (moral hazard problem) and, secondly, the imminent failure of systemically important market participants can put whole economies in serious financial trouble - take Ireland, for example.