Too Big to Fail & Systemic Risk (Including Systemic Risk)

The Wall Street financial crisis and government intervention of 2008 affirmed that the nation’s largest megabanks are “too big to fail”—so big and interconnected that the government will not allow them to fail.

As ICBA details in its “End Too-Big-To-Fail” study, too-big-to-fail distorts free markets, incentivizes risky behavior, leaves taxpayers on the hook, and creates unfair competitive advantages for the largest banks. Meanwhile, community banks face oppressive regulatory burdens as a direct result of megabank misdeeds.

A less concentrated and more diverse financial system would decrease systemic risk, improve competition and innovation, and increase the availability of consumer credit. ICBA and the nation’s community banks are dedicated to ending too-big-to-fail.

Articles & Press Releases

ICBA Backs Dallas Fed Plan to Restructure Too-Big-To-Fail Firms Addressing Systemic Risks, Reinforcing Market Discipline Needed for Long-Term Stability

Jan 17, 2013

Addressing Systemic Risks, Reinforcing Market Discipline Needed for Long-Term Stability

Washington, D.C. (Jan. 17, 2013)—The Independent Community Bankers of America (ICBA) today said it strongly supports Federal Reserve Bank of Dallas President and CEO Richard Fisher’s call to restructure too-big-to-fail financial institutions to reduce risks to the financial system. In a speech Wednesday, Fisher said that these overly complex financial firms should be restructured into multiple business entities and that only their resulting commercial banking operations would benefit from the safety net of federal deposit insurance and access to the Federal Reserve’s discount window.

“ICBA has long advocated restructuring too-big-to-fail financial institutions because of the risks they pose to our nation’s community banks, financial system and economy as a whole,” ICBA President and CEO Camden R. Fine said. “Their government guarantee against failure continues to distort the market and put taxpayers at risk. Policymakers need to act now to address the too-big-to-fail problem because we cannot afford to continue this government backstop for systemically dangerous institutions.”

Fisher noted in his speech that 99.8 percent of the nation’s banks are subject to failure, which ensures that these smaller institutions limit their risk. However, the nation’s 12 largest megabanks, which hold 69 percent of U.S. banking industry assets, are not allowed to fail because of their size and complexity. The result is limited market discipline and greater risk, even while these institutions enjoy the benefits of the federal safety net. Fisher’s plan would separate too-big-to-fail firms’ commercial and shadow banking affiliates and restrict access to the federal safety net to commercial banking operations.

“Splitting up and requiring greater accountability of too-big-to-fail financial firms will help reinstate financial market discipline and prevent future crises,” said Jeffrey L. Gerhart, ICBA chairman and chairman, president and CEO of Bank of Newman Grove, Neb. “The risky practices of too-big-to-fail financial firms have led to a years-long economic downturn on Main Street America and a heavy and growing regulatory burden on community banks. Risks to our financial system will only continue as long as the too-big-to-fail problem exists.”

ICBA strongly supports efforts to address the problem of too-big-to-fail because community banks will thrive and best serve their communities and customers in a truly free market. The recent financial crisis exacerbated the problem by leaving the financial services industry more concentrated than ever and by confirming that this moral hazard exists in the marketplace. These phenomena have a direct impact on Main Street community banks and their customers by providing large institutions with lower funding costs and a dominant market share.

About ICBA
The Independent Community Bankers of America®, the nation’s voice for more than 7,000 community banks of all sizes and charter types, is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education and high-quality products and services. For more information, visit

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Senators Crapo and Brown

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Federal Reserve Bank of Minneapolis
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