We all know that one problem of the crisis was that banks were perceived as being “too-bigto-fail”. The consequence was the perception that whenever a “too-big-to-fail” bank runs into trouble, the government might be compelled to bail it out in order to prevent a financial crisis. This means that these banks were implicitly insured – contrary to all market-based economic principles.
So, the decisive point is that banks must be able to fail without dragging the entire financial system down with them. What we need, therefore, are effective resolution mechanisms for banks. And the regulators are working on that problem.