Systemically Important or "Too Big to Fail" Financial Institutions [May 26, 2017] [open pdf - 845KB]
"Although 'too big to fail' (TBTF) has been a long-standing policy issue, it was highlighted by the financial crisis, when the government intervened to prevent the near-collapse of several large financial firms in 2008. Financial firms are said to be TBTF when policymakers judge that their failure would cause unacceptable disruptions to the overall financial system [...]There are a number of policy approaches--some complementary, some conflicting--to coping with the TBTF problem, including providing government assistance to prevent TBTF firms from failing or systemic risk from spreading; enforcing 'market discipline' to ensure that investors, creditors, and counterparties curb excessive risk-taking at TBTF firms; enhancing regulation to hold TBTF firms to stricter prudential standards than other financial firms; curbing firms' size and scope, by preventing mergers or compelling firms to divest assets, for example; minimizing spillover effects by limiting counterparty exposure; and instituting a special resolution regime for failing systemically important firms. A comprehensive policy is likely to incorporate more than one approach, as some approaches are aimed at preventing failures and some at containing fallout when a failure occurs."
CRS Report for Congress, R42150
Federation of American Scientists: http://www.fas.org/sgp/crs/index.html