BIS central bankers’ speeches  1  The traditional TBTF concern is that of moral hazard – the expectation that, when faced with the prospect of either variant of a major blow to the financial system, government authorities will provide funds or guarantees to the firm to keep it functioning.
Creditors and managers of firms who anticipate such support may not price into their credit or investment decisions the full risk associated with those decisions. As a result, the firms may become more leveraged and thus still larger, an outcome that would only reinforce the belief that the government will not allow them to fail.