Economic Brief

2010

 

June 2010, No. 10-06

Now How Large Is the Safety Net?

Jeffrey M. Lacker and John A. Weinberg

According to estimates done by researchers at the Richmond Fed, the federal financial safety net covered $25 trillion in liabilities, or 58 percent of all financial liabilities, at the end of 2008. Such expansion of the safety net has weakened market discipline and contributed to instability in the financial sector. Instead of attempting to address the "too big to fail" problem by breaking up large firms, for instance, policymakers ought to focus on credibly scaling back the safety net and making its boundaries transparent.

Additional Resources

Malysheva, Nadezhda and John R. Walter, "How Large Has the Federal Financial Safety Net Become?" Federal Reserve Bank of Richmond Working Paper No. 10-03R, March 2010 (revised February 2013).

Walter John R. and John A. Weinberg, "How Large Is the Federal Financial Safety Net?" Cato Journal, Winter 2002, vol. 21, no. 3, pp. 369-393.

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