Too Big to Fail Before the Fed

Too Big to Fail Before the Fed

“Too-big-to-fail” is consistent with policies followed by private bank clearing houses during financial crises in the U.S. National Banking Era prior to the existence of the Federal Reserve System. Private bank clearing houses provided emergency lending to member banks during financial crises. This...

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Bibliographic Details
Published in:The American economic review 2016-05, Vol.106 (5), p.528-532
Main Authors: Gorton, Gary, Tallman, Ellis W.
Format: Article
Language:eng
Subjects:
Analysis
Annual reports
Automated Clearing Houses
Bank failures
Banking industry
Central banks
Comptrollers
Correspondent banks
Economic crisis
Economic theory
HISTORICAL PERSPECTIVES ON FINANCIAL CRISIS, BANKS, AND REGULATION
National banks
Regulation of financial institutions
Short term debt
Standard deviation
Studies
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Summary:“Too-big-to-fail” is consistent with policies followed by private bank clearing houses during financial crises in the U.S. National Banking Era prior to the existence of the Federal Reserve System. Private bank clearing houses provided emergency lending to member banks during financial crises. This behavior strongly suggests that “too-big-to-fail” is not the problem causing modern crises. Rather it is a reasonable response to the threat posed to large banks by the vulnerability of short-term debt to runs.
ISSN:0002-8282
1944-7981