Too Big To Fail


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.


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.

  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. Risk

    The chance that an investment's actual return will be different ...
  5. Bailout

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

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

    Why Is Financial Literacy and Education so Important?

    Financial literacy is the confluence of financial, credit and debt knowledge that is necessary to make the financial decisions that are integral to our everyday lives.
  6. Professionals

    10 Must Watch Documentaries For Finance Professionals

    Find out about some of the best documentaries that finance professionals can watch to gain a better understanding of their industry.
  7. Stock Analysis

    Why Is GE Selling Some of Its Subsidiaries?

    Learn why GE is selling off a substantial amount so it does not have to comply with increased government regulation in the wake of the 2008 financial crisis.
  8. Economics

    How Does the Puerto Rican Debt Crisis Affect the US?

    Learn about the specifics of the Puerto Rican debt crisis and why economists disagree on how significantly it could affect the United States.
  9. Professionals

    Holding Out for Capital Gains Could Be a Mistake

    Holding stocks for the sole purpose of avoiding short-term capital gains taxes may be a mistake, especially if all the signs say get out.
  10. Economics

    Is The EU Holding Germany Back?

    As Germany agrees to initiate bailout talks with Greece once again, could all of the EU's economic turmoil result in Germany being better off alone?
  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 >>

You May Also Like

Hot Definitions
  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  2. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  3. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  4. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  6. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
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!