Too Big to Fail

About Too Big to Fail

The concept that some financial institutions are so large and interconnected that their failure would devastate the entire economy, requiring government rescue. The phrase was first used during the Continental Illinois bailout of 1984. In 2008, the US government rescued AIG, Citigroup, Bank of America, and dozens of other institutions because they were too big to fail. The Dodd Frank Act attempted to solve the problem through living wills, resolution authority, and higher capital requirements. The largest banks have grown even larger since 2008, leading critics to argue that too big to fail remains unsolved. The Financial Stability Board identifies globally systemically important banks that face stricter requirements.