No company is too big to fall or shrink (Fail or not grow) dramatically.’ Analyse this statement in reference to the present day global context.
“Too large to fail” refers to a company or industry that is so firmly established in a financial sector or economic that its demise would be catastrophic.
Although the government carried out massive capital and liquidity support programmes for banks and major nonbank financial organisations, there was strong political reaction against bail outs using it as a policy weapon, according to critics of “too big to fail” legislation.
One issue is that if a financial firm is so important to the government that it cannot fail, investors would lend to this too cheaply. This is indeed a subsidy that gives a company an edge over smaller businesses and promotes borrowing beyond acceptable levels, increasing the risk of a financial disaster. Customers understand that larger banks’ investment are safe than local banks’ deposits. As a result, larger banks may offer consumers cheaper interest rates than community banks must in order to attract deposits.
As a result, the government may consider bailing out a company or even an entire industry, such as Wall Street firms or American automakers, in order to avoid economic calamity.