Not a Bank, Not a SIFI; Still Too Big to Fail

Many have wrestled with too big to fail firms, with the attention predominantly focused on banks, especially the so-called systemically important ones, i.e. SIFI’s (“Systematically Important Financial Institutions”). In this Article we look at too big to fail firms. We focus on cases of large firms that are not banks but were considered too big to fail when in financial distress. We look at a diverse set of multi-jurisdictional, internationally active, and nationally very important large firms, analyze their outcomes and whether and in what way they were supported by their respective governments. This analysis reveals that all these firms can be categorized in one of four types of resolution frames: a standard bankruptcy procedure, a bankruptcy procedure with funding support from the state, an ad hoc solution, and a full bailout by the government. We argue that only the first two types are needed for resolving financial distress, with the latter two inefficient. We provide arguments for the efficiency of the government support via the bankruptcy procedure in a jurisdiction and we discuss how this fits our cases. We conclude that for large firms the moral hazard associated with the too big to fail argument can be mitigated, but that it at least implies a bankruptcy procedure that is able to handle such large cases.