The so-called too-big-to-fail policy has two conflicting sides: on one hand there's the moral hazard problem that it creates, but in the other hand the Fed must:

Question

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The too-big-to-fail policy is meant to protect the stability of the banking system, as the failure of a large bank could have severe repercussions on the entire economy. While it does create a moral hazard problem by incentivizing banks to take on riskier behavior, the potential consequences of not bailing out a large bank outweigh this concern. The other options listed (promoting competition, ensuring employment, controlling the money supply) are not the main goals of the too-big-to-fail policy.

The So-Called Too-Big-To-Fail Policy Has Two Conflicting Sides: on One