Too Big to Fail before the Fed
American Economic Review · 2016 · Volume 106 · Issue 5
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
Business Fluctuations, Cycles, Financial Markets and the Macroeconomy, Financial Crises, Banks, Depository Institutions, Micro Finance Institutions, Mortgages, Financial Institutions and Services: Government Policy and Regulation, Economic History: Financial Markets and Institutions: U.S., Canada: Pre-1913
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