Too networked to fail?

The need to craft special treatment for banks that are too big or interconnected to fail has long been a concern for regulators, but of equal importance is the challenge of identifying which institutions should be subjected to such measures. How can financial network models be used and how accurate is the information they provide? Joel Clark reports

On March 16, 2008, when the world first heard that financial support from the US Federal Reserve had effectively facilitated JP Morgan’s acquisition of an ailing Bear Stearns, there was widespread shock that a financial institution had been rescued in a government-sponsored package. It gave way to extensive discussions about the moral hazard associated with banks that become too big to fail and rely on state support when they get into trouble through excessive risk-taking.

But when the Fed’s