Posted by Sanjai Bhagat, University of Colorado Boulder, on Friday, March 17, 2017
Editor's Note: Sanjai Bhagat is Provost Professor of Finance at the University of Colorado Boulder Leeds School of Business. This post is based on Professor Bhagat’s recent book.
Despite Dodd-Frank’s stated intentions to make “too-big-to-fail” banks a thing of the past, investors and policymakers believe that many big banks are still too big to fail. This issue has come up repeatedly in economic discussions in Congressional hearings, and among senior policymakers in the United States and Europe. In recent work, we propose a solution to the too-big-to-fail problem that can be implemented with minimal or no additional regulations, only the intervention of corporate board members and institutional investors in these big banks.