Lessons From the Recession: Lesson 4—”Too Big to Fail” Means Too Big

Business failures are a part of everyday life. According to Statistics Canada data, only about one in five businesses survive their first 10 years, with tens of thousands of businesses being born and dying every year. So, when so many firms are simply allowed to fail, what makes a select few special enough to receive assistance? The answer is that the failure of these few could pose a systemic risk to the operation of the economy—either by causing the collapse of the financial system, a particular market, or the entire economy.

This executive action briefing argues that the state has a responsibility to effectively take out an insurance policy—through increased regulatory oversight—against catastrophic failure.