Why ‘Too Big to Fail’ Is Striking Fear Beyond Banks

After the failure of several big banks nearly crippled the global financial system in the late 2000s, regulators designated the largest remaining lenders as “too big to fail.” These so-called global systemically important banks, or G-SIBs, face the strictest regulatory scrutiny. Now, US regulators have laid the groundwork to extend that level of oversight to other types of financial companies such as hedge funds and asset managers. The move reverses Trump-era guidance that made it much harder to label companies that weren’t banks.

A clearer label might be “too big to be allowed to fail.” These are companies that the government considers so large and interconnected that the demise of any one might pose a threat to the financial system and the overall economy. Although the label has been applied primarily to banks, it could theoretically belong to any type of firm with a market presence large enough to extend through the global financial system. Only four nonbank financial companies have been labeled by the US as “systemically important” — American International Group, General Electric Capital, Prudential Financial and MetLife. Those designations have since been removed.