Question

What is the “too-big-to-fall policy of the CDIC and how is it associated with asymmetric information?

Answer 1

The too big to fall policy of the CDIC is a term given during the 2008 Global crises it happens when a big business is on the verge of failing and it is a threat to the whole economy therefore the government feels the need to intervene and manage the crises. As the failing of a large business would cause chain reactions through out the economy so they must be supported by the government to avoid any such failure. They are associated with asymmetric information as in such cases one party has more knowledge than the other party and that party decides to withhold that information. This happened during the 2008 crises where the housing bubble grew because of asymmetric information between the banks and the borrowers of money. Asymmetric information usually prevails between big firms as they don't want the world to know that they are not doing well as that might lead them to lose potential investors or clients.