Diploma Thesis from the year 2011 in the subject Economics - Finance, grade: 1, Vienna University of Economics and Business , language: English, abstract: The diploma thesis examines the TBTF-Problem with the main focus on systemic risk, moral hazard and distortion of competition. These phenomena are explained as the immediate consequences of the financial institutions oversize. In order to solve the TBTF-Problem I have used teachings of Leopold Kohr's size theory, which helped to construct a proposal for the reform of financial system structure and to give new perspective on its regulation. According to the theory there is a certain limit from which manageable becomes unmanageable, controllable becomes uncontrollable, and from which further development does not lead to progress, but to collapse. Thus, the problem of modern economic and, in particular, financial system is not the way how to stimulate growth, which became itself own purpose, but how to avert it. When someone at once arrives on the brink of abyss, the reasonable is only to step back. Therefore, the only cure for current financial instability is the division of TBTF institutions that have outgrown manageable proportions. For this purpose I recommend a three-tier financial system by which these ideas are operationalised.In addition the thesis discuses the regulatory framework, concentration and consolidation of the financial marker in US, that made the genesis of TBTF-Institutions possible. Furthermore I explain US housing bubble and the way of its emergence, including "originate and distribute" model, structured financial products as well as Ponzi scheme as an example of confidence game.
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