Coordinating Monetary And Macroprudential Policies

During the financial crisis and the widespread government bailouts it entailed, ?too big to fail? became a common term to describe implicit and explicit govern- ment guarantees of firms deemed integral to developed economies only because their failure would threaten economic collapse. The term also referred to the moral hazard of the creditors behind these firms who had the expectation of gov- ernment protection. By not facing any downsides to their investment, creditors were incentivized to capitalize these companies regardless of potential losses, by mispricing risks and allocating funds inefficiently. The impact of the following recession was not limited to the U. S., the crisis undermining the international banking system, as well as triggering global economic contraction and exposing sovereign debt crises throughout Europe. As a consequence, countries all over the world fell into recession, including the Euro Area economy as a whole. The danger of default threatened the financ