Too Big to Fail before the Fed
American Economic Review
vol. 106,
no. 5, May 2016
(pp. 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.Citation
Gorton, Gary, and Ellis W. Tallman. 2016. "Too Big to Fail before the Fed." American Economic Review, 106 (5): 528-32. DOI: 10.1257/aer.p20161043Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- N21 Economic History: Financial Markets and Institutions: U.S.; Canada: Pre-1913