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Federal Reserve Bank of Cleveland
Working Papers (Old Series)
Too-Big-to-Fail before the Fed
Gary Gorton
Ellis W. Tallman

“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.

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Gary Gorton & Ellis W. Tallman, Too-Big-to-Fail before the Fed, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 1612, 06 May 2016.
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Keywords: Financial crisis; bank runs; banking panic; clearing house; bank-specific information; currency premium
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