Too Big to Fail

Too Big to Fail (TBTF) is a financial and economic policy concept asserting that certain large financial institutions are so interconnected and systemically important that their failure would trigger a catastrophic collapse of the entire economy, compelling governments to provide financial support to prevent their insolvency. This implicit government guarantee, often formalized through post-2008 regulatory frameworks like the designation of Globally Systemically Important Banks (G-SIBs), creates a moral hazard by encouraging excessive risk-taking, as these institutions anticipate a public-funded bailout.