What does the term 'too big to fail' refer to?

The term 'too big to fail' specifically refers to financial institutions or large corporations whose collapse would have catastrophic consequences for the overall economy. This idea emerged prominently during the financial crisis of 2008 when the failure of major banks and financial entities could lead to substantial market disruption, loss of jobs, and severe economic downturns. The notion suggests that such institutions have become so intertwined with the economic system that their failure poses a systemic risk.

The government sometimes intervenes to prevent the failure of these institutions through bailouts or other measures to stabilize the economy, reflecting the belief that their continued operation is essential for the financial system's integrity. This concept underscores the importance of maintaining financial stability and the implications of allowing significant entities to fail.