890 CAPITAL UNIVERSITY LAW REVIEW [43:889
arena for examining the underdog rhetoric of small firms because of its
unique geopolitical characteristics and disposition to capture, stemming
from an absence of comprehensive regulation policies. The paper
concludes with normative suggestions for overcoming TSTF capture by
imposing new legal duties on the regulatory decision-making process of
Bailouts have become a pervasive phenomenon, particularly around
the 2008 global financial crisis and states’ rescue of major financial
institutions considered Too Big to Fail (TBTF).
The TBTF approach
intends to prevent catastrophic market domino effects due to the collapse
of interconnected firms, through state subsidies. Critics who object to state
bailouts of financially troubled firms point at manipulations that regulated
institutions perform on regulators and state officials, who become captured
by industries interested in state aid via the exchange of legally-dubious
While the phenomenon of regulatory capture by large and resourceful
firms is well researched by economists, jurists, and political scientists,
new unexplained phenomenon, yet to be addressed in academic literature,
is emerging in modern economies: the bailout of small firms. Due to the
relatively insignificant size and resources of those firms, the economic
logic of TBTF and regulatory capture does not account for their bailout.
Attempting to explain this phenomenon, this Article proposes a Too Small
to Fail (TSTF) bailout theory in which small firms capture regulatory
decision-making to obtain lucrative bailouts by employing an underdog
rhetoric: blaming regulation, regulators, global and local catastrophes, or
by pleading for special consideration due to social importance.
studies examined in this Article include U.S.-owned firms in both health
For a general explanation of the idea of Too Big to Fail see infra part III.A. For the
emergence and development of the term and policy in U.S. financial history, see Jonathan
R. Macey & James P. Holdcroft, Jr., Failur e is an Option: An Ersa tz-Antitrust Approach to
Financia l Regulation, 120 YALE L.J. 1368, 1376–78 (2011).
For the general idea of capture see, e.g., DANIEL CARPENTER & DAVID A. MOSS,
Introduction, in PREVENTING REGULATORY CAPTURE: SPECIAL INTER EST INFLUENCE AND
HOW TO LIM IT IT 1, 13 (Daniel Carpenter & David A. Moss eds., 2013) [hereinafter
PREVENTING CAPTURE]; George Stigler, The Theory of Economic Regulation, 2 BELL J.
ECON. & MGMT. SCI. 3, 4 (1971).
See infra Part III.A.
See infra Part III.B.