Too Connected to Fail
The concept of "Too Connected to Fail" refers to financial institutions or corporations that are so deeply intertwined with other entities, markets, or economies that their failure could trigger widespread systemic risks. These institutions are often critical to the financial system, and their collapse could lead to a chain reaction of failures, resulting in severe economic consequences. Regulatory agencies may take steps to protect such entities to maintain stability.
Example
A large multinational bank with extensive relationships and financial ties to other institutions may be considered "too connected to fail," as its collapse could destabilize the global financial system.
Key points
• Refers to institutions whose failure could trigger widespread systemic risk due to their extensive connections.
• Often considered critical to the stability of the financial system.
• Governments or regulators may intervene to prevent such failures.
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