However, despite the label, too big to fail, the magnitude of these externalities does not depend simply on size. The extent of the externalities also depends on the particular mix of business activities and the degree of interconnectedness with the rest of the financial industry. One significant element is the importance of the services the firm provides to the broader financial system and the economy, as well as the ease with which its customers can move their business to other providers. Another element is the extent to which the firm’s structure and activities create the potential for contagion – that is, the potential that a problem at one firm could spread more broadly through the financial system. Contagion might occur along several different pathways, including the direct losses imposed by failure on the firm’s counterparties, the impact of the failure on the asset prices held by other leveraged financial institutions, or a loss of confidence spreading to other firms with similar business models. The presence of large negative externalities creates a dilemma for policymakers when such firms are in danger of failing, particularly at a time when the wider financial system is also under stress. At that point in time, the expected costs to society of failure are very large compared to the short-run costs from providing the extraordinary liquidity support, capital, or other emergency assistance necessary to prevent catastrophic failure.
The difference is that they are still not done and cannot hope for a rebound that might otherwise be there. 2  BIS central bankers’ speeches