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Long live the taxpayer: Big banks don't fail and that is by design

It is standard practice in all countries and its origins lie in the creation of the US Fed in 1915

T C A Srinivasa-Raghavan 

T C A Srinivasa-Raghavan

Here’s a question that is troubling many people in the wake of the YES Bank collapse: If the stability of the financial system wobbles because one bank screws up, why should taxpayers save the shareholders? Good question because this has become the standard practice in all countries.

It’s grossly unfair but many think it’s justified even though it results in what economics calls ‘moral hazard’. The concept refers to a situation where insurance increases the propensity of the insured to take higher risks because someone else bears the cost of those ...

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First Published: Wed, March 11 2020. 09:58 IST
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