Too-Big-To-Fail Before the Fed
13 Pages Posted: 7 Mar 2016 Last revised: 16 Apr 2023
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Too-Big-To-Fail Before the Fed
FRB of Cleveland Working Paper No. 16-12
Number of pages: 14
Posted: 30 May 2016
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Date Written: March 2016
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.
Suggested Citation: Suggested Citation
Gorton, Gary B. and Tallman, Ellis W., Too-Big-To-Fail Before the Fed (March 2016). NBER Working Paper No. w22064, Available at SSRN: https://ssrn.com/abstract=2743063
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