In wake of the financial crisis, the building of special resolution regimes aimed to shut down ailing financial institutions of any size without upsetting systemic functions, has reached the top of the financial regulatory agenda and is proffered by experts and policymakers as a central part of the solution to the Too Big To Fail-problem. Why has the creation of special resolution policies become so popular among policy makers? The paper argues that the policies solve an important political dilemma: policymakers can claim to have plugged the problem of Too-Big-to-Fail without implementing fundamental structural reforms that are fiercely fought by the financial sector. In other words, special resolution regimes do not ‘rock the boat’. On the other hand, it is a technocratic fix that does not speak to popular concerns about social justice and equality making policy makers vulnerable to criticism for not doing enough to solve the problems laid bare by the crisis. This illustrates a fundamental legitimacy dilemma faced by policy makers in wake of the crisis: Voters want both access to credit and social justice, and considering the dependence on large financial institutions to bring the former, policy makers are in a bind to satisfy both. This legitimacy dilemma helps explain the lack of fundamental reform of financial regulation in following the crisis. The argument is illustrated through a case analysis of the political debate concerning the American special resolution policy.
