Too-Big-To-Fail Before the Fed

13 Pages Posted: 7 Mar 2016 Last revised: 16 Apr 2021

See all articles by Gary B. Gorton

Gary B. Gorton

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Ellis W. Tallman

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Multiple version iconThere are 2 versions of this paper

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

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

Gary B. Gorton (Contact Author)

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National Bureau of Economic Research (NBER)

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Yale University - Yale Program on Financial Stability

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Ellis W. Tallman

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

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