M & B 4th Edition by Dean Croushore

Exercise 1

When a small bank has fi nancial problems, the banking authorities are likely to close it down, leading to substantial losses for uninsured depositors and the bank's stockholders. Yet a big bank in the same trouble may be saved by the banking authorities. Is this a sensible solution? Can it be defended on the grounds of economic effi ciency? What about on the grounds of equity (fairness)?