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Working Paper

Too-Big-to-Fail before the Fed

"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.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Gorton, Gary, and Ellis W. Tallman. 2016. “Too-Big-to-Fail before the Fed .” Federal Reserve Bank of Cleveland, Working Paper No. 16-12.