"Too big to fail" is the phrase being used by some in Washington D.C., including NEPA Congressman Paul Kanjorski, to justify the possibility of the government forcing the break-up of large financial services companies. It's a smoke-screen designed to deflect from poor regulation and virtually zero accountability. Don't buy it for a minute.
Some large financial services companies (such as AIG) were given enormous government bailouts because of the "blind eye" system of regulation that exists in the financial services industry. It's the same system where the "blind eye" was turned away from Bernie Madoff as he stole billions from his customers. Now, since the federal government has failed in it's system of allowing the financial services industry to regulate itself (which it does, by the way...in essence the federal government has allowed the fox to manage the hen-house all these decades), some in government want to shift the blame away from themselves through sloganeering like "too big to fail".
Conceptually this stuff isn't so hard: simply set standards for conduct and risk management and enforce them. Of course the enforcement shouldn't come from the industry being regulated, so this notion of the SEC "outsourcing" part of its responsibilities to FINRA needs to be examined. I'm not claiming that there isn't a rule in the industry for self-regulation, but clearly there was a massive failure of oversight when it came to AIG, Madoff, etc.
The real answers to these problems are more complex than simply "too big to fail". Some companies (including the one I work for) did not take any federal bailout money and have actually done rather well this year. Why should my firm be under the threat of "too big to fail" if it has done the right things relative to risk management and its customers?