Another problem is that a failing institution could have thousands of open transactions with its counterparties, which are largely other financial institutions.
Finally, the failure of one bank can cause investors or counterparties to lose confidence in another, similar bank.
For these reasons, many people have said that the real problem is not the size of the bank (convenientially measured by the total value of its assets), but its interconnectedness. But whatever the term "too big to fail," "too interconnected to fail," "systemically important" (preferred by Ben Bernake), "tier 1 financial company" (preferred by the Treasury Department)--the fact remains that certain financial institutions cast a sufficiently large shadow over the financial system that they cannot be allowed to fail...
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