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Are Some Banks Too Large To Fail? Myth And Reality

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  • GEORGE G. KAUFMAN
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    Abstract

    At the time of the Continental Illinois National Bank insolvency, bank regulators considered some commercial banks "too large to fail" (TLTF) and were reluctant both to legally fail such banks and to impose pro rata losses on any of the uninsured creditors of these insolvent banks and their parent holding companies. This policy was introduced due to widespread fears that large bank failures would set off a domino effect bringing down other banks and possibly even the macroeconomy as it did during the 1930s. Also, because these banks are considered special in that they provide money and credit to their communities, many feared that their failure could reduce greatly the availability of these services. Copyright 1990 Western Economic Association International.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1465-7287.1990.tb00298.x
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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

    Volume (Year): 8 (1990)
    Issue (Month): 4 (October)
    Pages: 1-14

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    Handle: RePEc:bla:coecpo:v:8:y:1990:i:4:p:1-14

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    Cited by:
    1. Robert A. Eisenbeis & W. Scott Frame & Larry D. Wall, 2004. "Resolving large financial intermediaries: banks versus housing enterprises," Working Paper 2004-23, Federal Reserve Bank of Atlanta.
    2. Christopher L. Colvin & Abe de Jong & Philip T. Fliers, 2013. "Predicting the Past: Understanding the Causes of Bank Distress in the Netherlands in the 1920s," Working Papers 0035, European Historical Economics Society (EHES).
    3. George G. Kaufman & Steven A. Seelig, 2001. "Post-Resolution Treatment of Depositors at Failed Banks: Implications for the Severity of Banking Crises, Systemic Risk, and Too-Big-To-Fail," IMF Working Papers 01/83, International Monetary Fund.
    4. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
    5. Kaufman, George G., 2002. "Too big to fail in banking: What remains?," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(3), pages 423-436.
    6. Elijah Brewer III & Ann Marie Klingenhagen, 2010. "Be careful what you wish for: the stock market reactions to bailing out large financial institutions: Evidence from the USA," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 18(1), pages 56-69, February.
    7. Robert L. Hetzel, 2009. "Should increased regulation of bank risk-taking come from regulators or from the market?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 161-200.
    8. George G. Kaufman & Steven A. Seelig, 2000. "Post-resolution treatment of depositors at failed banks: implications for the severity of banking crises, systemic risk, and too-big-to-fail," Working Paper Series WP-00-16, Federal Reserve Bank of Chicago.

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