Other than breaking systematically important financial institutions, the too-big-to-fail problem could be mitigated by requiring ________.
A) lower capital requirements
B) making capital requirements procyclical
C) making it easier for the Fed to bail out failing banks
D) revoking the Volker rule

Question

Quizplus · Accepted Answer

Making capital requirements procyclical would require banks to hold more capital in good times and less in bad times, which would make it less likely for them to become too-big-to-fail. The other choices would not address this issue. Lower capital requirements would make it easier for banks to take on more risk and potentially become even larger, while making it easier for the Fed to bail out failing banks and revoking the Volker rule would not address the root issue of banks becoming too-big-to-fail.

Other Than Breaking Systematically Important Financial Institutions, the Too-Big-To-Fail Problem