On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates

Home About Latest Browse RSS Advanced Search

Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Can a Bank Run Be Stopped? Government Guarantees and the Run on Continental Illinois
Mark A. Carlson
Jonathan D. Rose
Abstract

This paper analyzes the run on Continental Illinois in 1984. We find that the run slowed but did not stop following an extraordinary government intervention, which included the guarantee of all liabilities of the bank and a commitment to provide ongoing liquidity support. Continental's outflows were driven by a broad set of US and foreign financial institutions. These were large, sophisticated creditors with holdings far in excess of the insurance limit. During the initial run, creditors with relatively liquid balance sheets nevertheless withdrew more than other creditors, likely reflecting low tolerance to hold illiquid assets. In addition, smaller and more-distant creditors were more likely to withdraw. In the second and more drawn out phase of the run, institutions with relative large exposures to Continental were more likely to withdraw, reflecting a general unwillingness to have an outsized exposure to a troubled institution even in the absence of credit risk. Finally, we show that the concentration of holdings of Continental's liabilities was a key dynamic in the run and was importantly linked to Continental's systemic importance.


Download Full text
Download DOI
Cite this item
Mark A. Carlson & Jonathan D. Rose, Can a Bank Run Be Stopped? Government Guarantees and the Run on Continental Illinois, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2016-3, 03 Feb 2016.
More from this series
JEL Classification:
Subject headings:
Keywords: Bank runs; deposit guarantee; deposit insurance; financial crisis
DOI: 10.17016/FEDS.2016.003
For corrections, contact Ryan Wolfslayer ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal