Too Big To Fail

AAA

DEFINITION of 'Too Big To Fail'

The idea that a business has become so large and ingrained in the economy that a government will provide assistance to prevent its failure. "Too big to fail" describes the belief that if an enormous company fails, it will have a disastrous ripple effect throughout the economy.

INVESTOPEDIA EXPLAINS 'Too Big To Fail'

Large companies generally do business with many other companies for supplies and services. If a large company fails, the companies that rely on it for portions of their income might be brought down as well, not to mention the number jobs that would be eliminated. Therefore, if the cost of a bailout is less than the cost of the failure to the economy, a government may decide that a bailout is the most cost-effective solution.

RELATED TERMS
  1. Systemically Important Financial ...

    Any firm as designated by the U.S. Federal Reserve, whose collapse ...
  2. Supervisory Capital Assessment ...

    A financial stress test conducted by the Federal Reserve System ...
  3. Counterparty Risk

    The risk to each party of a contract that the counterparty will ...
  4. Bailout

    A situation in which a business, individual or government offers ...
  5. Moral Hazard

    The risk that a party to a transaction has not entered into the ...
  6. Risk

    The chance that an investment's actual return will be different ...
RELATED FAQS
  1. What is the minimum leverage ratio that must be attained under Basel III?

    One of the major capital standards changes of the Basel III Accord was a reduction in excess leverage from the banking sector. ... Read Full Answer >>
  2. How did moral hazard contribute to the financial crisis of 2008?

    The financial crisis of 2008 was the result of a wide range of contributing factors. One significant factor leading up to ... Read Full Answer >>
  3. What are some examples of moral hazard in the business world?

    Moral hazard is a situation in which one party to an agreement engages in risky behavior or fails to act in good faith because ... Read Full Answer >>
  4. What growth rate does the financial services sector demonstrate on average?

    Growth in the financial services sector can be broadly divided into two periods: growth before 1980 and growth since 198 ... Read Full Answer >>
  5. Why should an investor consider the financial services sector?

    Any serious investor should consider the financial services sector because it offers one of the largest markets that is full ... Read Full Answer >>
  6. How do leverage ratios help to regulate how much banks lend or invest?

    Banks are among the most leveraged institutions in the United States; the combination of fractional-reserve banking and Federal ... Read Full Answer >>
  7. What is moral hazard?

    An idea that a party that is protected in some way from risk will act differently than if they didn't have that protection. ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    The Treasury And The Federal Reserve

    Find out how these two agencies create policies to stimulate the economy in tough economic times.
  2. Insurance

    Liquidity And Toxicity: Will TARP Fix The Financial System?

    TARP is the government's attempt to forestall a deep, extended recession. Will it work?
  3. Active Trading Fundamentals

    The Fall Of The Market In The Fall Of 2008

    How did America's strong economy tumble so quickly? Find out here.
  4. Insurance

    A Nightmare On Wall Street

    These tales of banking terror sent shivers down the spines of even the most steadfast bankers.
  5. Bonds & Fixed Income

    Dodd-Frank Creates a Liquidity Crunch for Bonds

    While each individual institution is undoubtedly safer due to capital constraints imposed by Dodd-Frank, this makes for a more illiquid market overall. The lack of liquidity will be especially ...
  6. Economics

    Game Theory And The Greece Bank Crisis

    How can game theory help us understand how the Greece bank crisis will play out? As things come to a head, Greece and the Europeans are trying to hold out.
  7. Stock Analysis

    The 3 Best Buy-and-Hold Stocks For the Next 10 Years

    Find out what makes electric cars, burritos and muscle shirts great buy-and-hold additions to your long-term portfolio.
  8. Markets

    Will Spain Exit the Euro?

    With a "no" vote in last Sunday’s referendum on whether the Greek people would accept imposed austerity measures, chances of a Greek exit from the euro have substantially increased. Will Spain ...
  9. Investing News

    Who Are The Biggest Losers Of The Greek 'No'?

    In the event of a Grexit, there is little question that the near-term hit to its tourists, banks, and creditors would be rather severe.
  10. Investing News

    Who Are The Biggest Winners From The Greek 'No'?

    Greece’s non-acceptance of the bailout plan has created some winners for European and other global investors to put their money to work.

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!