What is "too big to fail"

a. (context finance economics politics English) Deemed too important to the economy or polity to be allowed to “fail”, that is to be liquidated or to go bankrupt.

The "too big to fail" theory asserts that certain corporations, and particularly financial institutions, are so large and so interconnected that their failure would be disastrous to the greater economic system, and that they therefore must be supported by government when they face potential failure. The colloquial term "too big to fail" was popularized by U.S. Congressman Stewart McKinney in a 1984 Congressional hearing, discussing the Federal Deposit Insurance Corporation's intervention with Continental Illinois. The term had previously been used occasionally in the press.

Proponents of this theory believe that some institutions are so important that they should become recipients of beneficial financial and economic policies from governments or central banks. Some economists such as Paul Krugman hold that economies of scale in banks and in other businesses are worth preserving, so long as they are well regulated in proportion to their economic clout, and therefore that "too big to fail" status can be acceptable. The global economic system must also deal with sovereign states being too big to fail.

Opponents believe that one of the problems that arises is moral hazard whereby a company that benefits from these protective policies will seek to profit by it, deliberately taking positions (see asset allocation) that are high-risk high-return, as they are able to leverage these risks based on the policy preference they receive. The term has emerged as prominent in public discourse since the 2007–08 global financial crisis. Critics see the policy as counterproductive and that large banks or other institutions should be left to fail if their risk management is not effective. Some critics, such as Alan Greenspan, believe that such large organisations should be deliberately broken up: "If they're too big to fail, they're too big". More than fifty prominent economists, financial experts, bankers, finance industry groups, and banks themselves have called for breaking up large banks into smaller institutions.

In 2014, the International Monetary Fund and others said the problem still had not been dealt with. While the individual components of the new regulation for systemically important banks (additional capital requirements, enhanced supervision and resolution regimes) likely reduced the prevalence of TBTF, the fact that there is a definite List of systemically important banks considered TBTF has a partly offsetting impact.

Too Big to Fail is a U.S. television drama film first broadcast on HBO on May 23, 2011 based on Andrew Ross Sorkin's non-fiction book Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves (2009). The film was directed by Curtis Hanson. It received 11 nominations at the 63rd Primetime Emmy Awards; Paul Giamatti's portrayal of Ben Bernanke earned him the Screen Actors Guild Award for Outstanding Performance by a Male Actor in a Miniseries or Television Movie at the 18th Screen Actors Guild Awards.

Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves, also known as Too Big to Fail: Inside the Battle to Save Wall Street, is a non-fiction book by Andrew Ross Sorkin chronicling the events of the 2008 financial crisis and the collapse of Lehman Brothers from the point of view of Wall Street CEOs and US government regulators. The book was released on October 20, 2009 by Viking Press.

It won the 2010 Gerald Loeb Award for Best Business Book, and was shortlisted for the 2010 Samuel Johnson Prize and the 2010 Financial Times and Goldman Sachs Business Book of the Year Award.

The book was adapted in 2011 for the HBO television movie Too Big to Fail.