The impact of Lehman’s bankruptcy seemed to confirm fears that failure of the largest financial firms risked the complete implosion of the financial system. This, of course, is the toobig-to-fail problem: government officials may feel compelled to save private financial firms with public (that is, taxpayer) capital. Meanwhile, financing markets had nearly frozen up. Hence the extraordinary government actions that followed.
Public capital was injected into all of  1  the nation’s largest remaining banking firms following congressional enactment of the Troubled Assets Relief Program (TARP). The Federal Reserve and the Department of the Treasury provided financing and backstops, respectively, for money market funds and various forms of securitized assets.