Banking · Core
Too Big to Fail
Too big to fail is the expectation that a firm’s collapse would force a public rescue — a subsidy in funding spreads and a policy problem.
Definition
If creditors believe they will be bailed out, they fund cheaper. G-SIBs, living wills, TLAC, and resolution are the post-2008 attempt to make failure survivable. The expectation can migrate to ‘too many to fail.’
Why it matters
It distorts competition and risk-taking. It also describes a real externality: some failures are public goods in reverse.
Case
2008 G-SIB rescues vs 2023 regional-bank backstops. The perimeter of TBTF is a political object that credit spreads sniff.
How to read it
Resolution plan, TLAC, and whether deposits or bonds are the protected class. TBTF is an expectation, not a statute you can quote in one line.
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