Newsletter May 09: Accept some firms are ‘too-big-to-fail’ – FSA chief

NEW YORK – Adair Turner, Britain’s top financial regulator, has boldly challenged much academic and political opinion, suggesting that it may be necessary to accept that some financial firms are just ‘too-big-to-fail’ or ‘too-connected-to-fail’ or both. Although many firms have been bailed out on these ground during the global financial crisis, a strong body of opinion, particularly in the US, favours putting in place policies that allow even the largest firms to go bust in future. Bailouts create moral hazard, it is said. What are needed are mechanisms that allow the resolution and orderly winding down of insolvent banks, insurance companies or other financial institutions.