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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

Larry D. Wall
Federal Reserve Bank of Atlanta, 2016
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8

Qualities

  • Analytical
  • Innovative
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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.

Take-Aways

  • The public policy problem of too-big-to-fail banks first arose in the 1980s. Since then, attempts to address the issue either have failed or have yet to prove their mettle.
  • A test of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (DFA) can assess whether its provisions would have prevented past bank bailouts.
  • A troubled loan portfolio, a run by foreign depositors and the fear of systemic financial contagion led to a $1.1 billion government bailout of Continental Illinois in 1984.

About the Author

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

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