12 Pages Posted: 2 Mar 2016
Date Written: February 29, 2016
“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: Suggested Citation