MARK BARNES: Too Big To Fail is not about size
It has to do with interconnectivity, and the propensity to create systemic risk
The notion “too big to fail” (TBTF) is certainly not a new one. But it rose to prominence immediately after the 2008 global financial crisis. The US Federal Reserve, albeit somewhat selectively at first, chose to support various major financial institutions, rather than risk the global financial meltdown it felt would follow, primarily because of the interconnectivity these major players had to the proper financial functioning of the world economy.
TBTF has less to do with size than it has to do with interconnectivity, and the propensity to create systemic risk. That is an important distinction, particularly in the SA context. TBTF is implicitly in play in any country where the existence of any institution is dependent on the provision of a government guarantee or bailout to stay in business. This is not necessarily limited to the provision or underwriting of funds. It may also take the form of regulatory protection or interferences such as price prescription or tariff imposi...