How might the existence of government safety net lead to increased concentration in the banking industry?
Increased concentration when small banks fail and large banks
fail. The large banks which have billions of assets and liabilities
get bailout package due to the government safety net. This happen
because failing of big banks is highly detrimental to the economy.
However small banks don't receive any bailout package and fail or
are beaten in competition by large banks. As a result the larger
banks concentration increases and small banks die out. Moreover the
government policy of bail out for too big to fail banks allows them
the liberty to engage in risky business, speculation and subprime
loaning activity
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How might the existence of government safety net lead to increased concentration in the banking industry?
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