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Are big trading houses too big to fail?

Source: Financial Times, 9th October 2012

The global financial crisis of 2008-09 made clear that large global banks, such as Goldman Sachs, are just too big to fail. Could a future crisis in the commodities market reveal that trading houses such as Glencore pose a similar problem?

The question of whether these institutions have become so large and embedded in the economy that policymakers cannot let them collapse is critical.

The big trading houses underpin global trade in raw materials – buying commodities from producers, transporting them and selling them to consumers. They also play an important role in extending credit to producers, from miners to farmers.

Global policymakers are starting to worry they may be overlooking where the next “too big to fail” threat might emerge. Timothy Lane, deputy governor of the Bank of Canada, articulated these concerns in a recent speech.

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