However, “too big to fail” is not compatible with the principles of a market economy, nor is “too interconnected to fail”. In extremis, banks must be able to fail. For only the possibility of failure guarantees the implementation of the principle of liability. And only the principle of liability ensures that economic agents take responsible decisions.
This is not intended to be a plea for “small is beautiful”. Large international banks definitely have a place in our economic framework. Nor does the sensible ringfencing of risky, speculative business from normal customer business, as proposed by the Liikanen Group and taken up by the European Commission, change this. However, incentives to expand to ever greater size should be reduced.