Too Big to Fail before the Fed

Gary Gorton and Ellis Tallman

American Economic Review, 2016, vol. 106, issue 5, 528-32

Abstract: "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.

JEL-codes: E32 E44 G01 G21 G28 N21 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.p20161043
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Citations: View citations in EconPapers (9)

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