Uninsured creditors have little reason to engage in risk analysis, let alone act on such analysis, if they believe that they will always be made whole under a de facto too-big-to-fail policy. Recognizing that dilemma, in 1991 the Congress placed in the Federal Deposit Insurance Corporation Improvement Act a requirement for a least-cost resolution of financial institutions.
Although an exception clause exists, it does not require that all uninsured creditors be made whole. Conceptually, there are rare situations where events may require that the FDIC and other governmental resources be used temporarily to sustain a failing institution pending its managed liquidation. But indefinitely propping up insolvent intermediaries is the road to stagnation and substantial resource misallocation, as recent history attests.