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In the absence of limits on the behavior of large intermediaries, how might the perception of institutions being too-big-to-fall lead to increased concentration in the
In the absence of limits on the behavior of large intermediaries, how might the perception of institutions being "too-big-to-fall" lead to increased concentration in the banking industry? The safety net encourages more banks to enter the market, thus increasing concentration in the industry. The safety net creates moral hazard problems for big banks by encouraging extremely risky behavior. This puts small banks at a competitive disadvantage, driving them out of the market and leading to an increase in concentration. The safety net encourages larger banks to split into several smaller institutions, thus increasing the concentration in the banking industry. The safety net alleviates the too-big-to-fail problem, thus increasing concentration in the banking industry
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