Meaning
Describes a bank or other institution so large and interconnected that its collapse would devastate the wider economy, so governments are expected to rescue it; also names that doctrine and the moral-hazard criticism attached to it. Standard in finance and economics reporting, and in political attacks on bailouts. Technically neutral in economics, but populist and accusatory in political debate. Regional use: General English; originated in US policy and finance discourse, now global.
Origin
Bailouts justified by systemic risk long predate the phrase, which had appeared only occasionally in print before 1984. Its popularisation is pinned to congressional hearings after the May 1984 rescue of Continental Illinois, then the largest bank failure in US history: when the Comptroller of the Currency said regulators had no way to unwind the biggest banks, Representative Stewart McKinney shot back that a new kind of bank had been created, too big to fail. The Federal Reserve's own history essay credits that 1984 crisis with putting the phrase in the public lexicon for the first time. The 1998 rescue of Long-Term Capital Management kept it alive, and the 2008 financial crisis made it inescapable; Fed Chair Ben Bernanke offered a formal definition around 2010, and the words later served as the title of a bestselling crisis chronicle and its screen adaptation.
Research Sources
References used to check this entry’s meaning, history, or documented forms.
Variants
- TBTF
- too big to jail
Usage Examples
- Regulators classified the conglomerate as too big to fail, which in practice guaranteed a bailout.
- The too-big-to-fail doctrine lets megabanks borrow more cheaply than their smaller rivals.
- Critics argue that branding firms too big to fail just encourages reckless behaviour.