The concept of 'Too Big to Fail' in banking refers to:
A. The absence of any systemic risk
B. The legal requirement that all banks must be small
C. Only the size of non-bank firms
D. The expectation that systemically important banks will receive government support in the event of distress
Answer: Option D
Solution (By JKSSB Mock Tests)
Too-big-to-fail refers to the market perception or policy practice that certain large and interconnected financial institutions will be rescued by the authorities because their failure would impose systemic costs.
Explanation:
In a mixed economy, the government intervenes to provide public goods, correct externalities and redistribute income, but does not completely control all production decisions, which remain partly with the private sector.
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