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Ending Too Big to Fail: Lessons from Continental Illinois

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Ending Too Big to Fail: Lessons from Continental Illinois

Notes from the Vault

Federal Reserve Bank of Atlanta,

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Was ist drin?

The 1984 failure of Continental Illinois echoes in 2016.

Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Well Structured

Recommendation

Since the 2008 financial crisis, regulators have crafted a complex blueprint to mitigate banks’ interconnectedness, high-risk business activities and size. Yet the circumstances responsible for the 1984 failure of Continental Illinois National Bank and Trust Company suggest that the rules in place today may not be adequate to prevent another systemic financial crisis, according to Atlanta Fed executive director Larry D. Wall. getAbstract recommends his relevant, solidly researched and accessible article on the issue of too big to fail to policy makers and bankers.

Summary

The notion of banks becoming too big to fail (TBTF) originated as a public policy concern more than three decades before the 2008 financial crisis. Legislative attempts to address TBTF either have failed or have yet to prove their mettle. The 1991 Federal Deposit Insurance Corporation Improvement Act didn’t prevent the 2008 crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (DFA) has added arrows to the supervisory quiver, yet it may not provide sufficient armament to stave off a future crisis. Would DFA provisions have precluded the 1984 bailout of the Continental Illinois National Bank and Trust Company...

About the Author

Larry D. Wall is an executive director at the Federal Reserve Bank of Atlanta.

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