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Too-Big-to-Fail Before the Fed

12 Pages Posted: 2 Mar 2016  

Gary B. Gorton

Yale School of Management; National Bureau of Economic Research (NBER)

Ellis W. Tallman

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Multiple version iconThere are 3 versions of this paper

Date Written: February 29, 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.

Keywords: Financial Crisis, Bank bailouts

JEL Classification: E3, E5, E6

Suggested Citation

Gorton, Gary B. and Tallman, Ellis W., Too-Big-to-Fail Before the Fed (February 29, 2016). Available at SSRN: https://ssrn.com/abstract=2739896 or http://dx.doi.org/10.2139/ssrn.2739896

Gary B. Gorton (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New haven, CT 06511
United States

HOME PAGE: http://mba.yale.edu/faculty/profiles/gorton.shtml

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ellis W. Tallman

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

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