FDICIA's Discount Window Provisions Bv Walker F

December IS. 1992 6GONOMIG GOMMeiMTCIRY Federal Reserve Bank of Cleveland

FDICIA's Discount Window Provisions bv Walker F. Todd

Fn December 19.1991, President • Background Bush signed into law the Federal Deposit A regulatory closing or other failure Insurance Corporation Improvement Act resolution effectively constitutes official (FDIC1A), which Congress passed to ad- recognition of a depository institution's The Federal Deposit Insurance Cor- dress problems it saw in the supervision economic insolvency. Typically, as many poration Improvement Act of 1991 of federally insured banks. An important as three agencies could be involved in a (FDICIA) made potentially the most component of FD1CIA that has already bank shutdown: the chartering agency, significant statutory alterations in the received substantial public attention is the FDIC, and any Federal Reserve Bank Federal Reserve System's discount win- the set of provisions detailing a new from which the institution might have dow lending regime in nearly 50 years. process for prompt corrective supervi- borrowed prior to closing. FDICIA restricts the Reserve Banks1 sory action against undercapitalized authority to lend to undercapitalized banks. Much more obscure, though per- Although the Federal Reserve's formal depository institutions in order to ad- haps as innovative, are the sections of role in the closing is passive, it may dress issues raised by the "too-big-to- the legislation that modify the terms and precipitate this action by demanding fair doctrine surrounding rescues of conditions under which the Federal repayment of its advances. If the bor- uninsured claimants on insolvent Reserve Banks may lend to troubled rower cannot repay the advances upon banks. In addition, the new legislation banks at the discount window. demand, the chartering agency (the Of- provides explicit guidance to the FDIC fice of the Comptroller of the Currency on the status of uninsured claims under Congress felt compelled to address dis- |OCC) for national banks) declares the the systemic risk doctrine. count window administration in FDIC1A bank insolvent and appoints the FDIC because of its concern that, under certain either as a receiver outright or as circumstances, discount window ad- operator of a bridge bank, a kind of vances to troubled institutions could un- conservatorship under the FDIC's con- necessarily increase taxpayers" cost when trol.' If there is a Federal Reserve ad- the firms were eventually closed and liq- vance, it is either repaid at once or ar- uidated, or sold by the FDIC. Implicitly. rangements are made for deferred through the changes to discount window payment by the FDIC. In a liquidation, administration imposed by FD1CIA. the insured depositors are paid off in Congress sought not only to clarify the full, followed by the secured creditors. application of concepts like "too big to The uninsured depositors and other fail." "systemic risk." and "lender of general and subordinated creditors are last resort," but also to provide more paid back in full if sufficient funds are explicit guidance to the Federal Reserve available, but they are at risk of receiv- regarding the appropriate use of the dis- ing only a partial payback. The stock- count window in failing bank situa- holders stand last in line for the receipt tions. The aim of this Economic Com- of liquidation funds. mentary is to describe the evolution of supervisory policy toward failing banks over the last 20 years or so. with par- ticular emphasis on the role of Federal Reserve Banks in their capacity as "lenders of last resort."

ISSN (W2N-1276 This simplified model of a bank closing the failing bank's capital in proportion typically to small agricultural banks; began to evolve into more complicated to its assets, and the more quickly the short-term adjustment loans, when a forms nearly 20 years ago, when the bank is closed upon recognition of its temporary reserve deficiency cannot be Federal Reserve Bank of New York failure, the less likely it is that the met in the national funds market: and made a large, prolonged advance to FDIC would need to provide its own extended credit, when a bank no longer Franklin National Bank of New York funds for a troubled bank resolution. has normal access to the funds market and to facilitate its orderly closing in 1974. needs time to find alternative sources. In the Franklin case, the Reserve Bank A record number of banks have failed Most of the academic and congressional acted as a lender of last resort because since Continental Illinois, exhausting the concern that has been expressed about no other institution was willing to incur capacity of the FDIC's bank insurance the appropriateness of discount window the risk of nonpayment at par by lend- fund (BIF) to repay even the insured de- loans pertains to the use of extended ing substantial sums to Franklin on an positors beyond the reserves already pro- credit, especially when advances are unsecured basis." vided for expected future losses. The BIF outstanding for prolonged periods.6 also has had to absorb losses suffered by Subsequently, the too-big-to-fail doctrine an unusually large number of uninsured A traditional view of the lender-of-last- evolved from federal bank regulators' claimants who have received settlements resort function, one that in fact pre- actions in dealing with large, troubled under the too-big-to-fail doctrine. vailed at the Board of Governors financial institutions, roughly since the before 1970 or so, would have avoided failure and rescue of Continental Illinois Eventually, after Congress became continuous borrowings by member of Chicago in 1984. This doctrine gen- faced with the need to provide finan- banks from the Reserve Banks, even to erally holds that some banks, because of cial backing for the BIF during 1991, it provide liquidity to failing or insolvent either their size and correspondent bank- began to reconsider the process by banks prior to their resolutions. The ing relationships (the case for Continen- which bank failures were handled by reason is that such borrowings in effect tal) or their importance in key regional or the supervisory agencies. As part of its would have constituted use of Federal international financial markets (possibly inquiry. Congress questioned the role Reserve credit as a substitute for the the case for both the Bank of New Eng- of discount window advances in failure member banks' capital for the duration land of Boston [ 1991 ] and the National resolutions. Supervisory forbearance of the advances. A theoretically and Bank of Washington [1990]), should not regarding the closure of large banks traditionally appropriate provision of be liquidated with less than full pay- was thought to have contributed to Reserve Bank credit in bank failures is ment of liabilities, including uninsured their ability to take greater risks and to the extension of advances to other sol- liabilities.' Formally, too-big-to-fail operate with less capital than the vent banks holding claims on the fail- decisions are made by the FDIC, not market would have tolerated in the ab- ing banks. the Federal Reserve, but the Federal sence of the forbearance. Reserve's participation in some large Banking conditions changed somewhat failure resolutions has allowed it to Congress also was concerned about pos- during the 1970s from their post- play a significant role in implementing sible inequities in the availability of dis- Depression norms. Many banks, espe- this doctrine. In any case, neither count window borrowings in failing bank cially large ones, became more active "lender of last resort" nor "too big to situations. Small banks have complained internationally and developed exten- fail" is a statutorily defined term guid- that reducing the coverage of deposit in- sive interbank correspondent relation- ing Federal Reserve policies — these surance would drive depositors away ships. Moreover, the economy suffered phrases do not appear in the Federal from them and into the largest banks, be- two strong recessions, inflation and in- Reserve Act. cause generally only large banking organ- terest rates spiraled. and bank capital izations were thought to be too big to fail. positions deteriorated. When Franklin In some instances, especially involving Although there apparently had been a National Bank found itself unable to some recent failures of large banks, in- tendency for the FDIC to extend too-big- maintain prior funding sources in 1974, stitutions do not have sufficient assets to-fail treatment to ever-smaller banks, the FDIC and the Federal Reserve em- to cover both the repayment of their eroding market discipline further, depos- barked on a sizable and protracted res- Federal Reserve advances and the itors and other uninsured creditors of the cue operation. From that time forward, liabilities owed to all other claimants smallest banks have never really felt it could be said that federal banking (except stockholders and subordinated equally treated by the regulatory process regulators began to think of discount creditors). Some of the uninsured of resolving bank failures. window extended credit as an essential claimants might suffer losses if the too- tool to maintain the liquidity of insolvent or failing banks, though it was big-to-fail doctrine were not invoked. • Discount Window Administration several more years before such a situa- If the doctrine were invoked, however, Prior to FDICIA tion actually reemerged. the FDIC might need to use its own Loans to banks through the Federal resources to pay off the uninsured par- Reserve Banks' discount windows gen- ties fully. It is easy to see that the larger erally take three forms: seasonal loans, CAPITAL CATEGORIES DEFINED BY FDICIA ultimate cost of liquidating or selling the bank to the FDIC. The loss arises Group 1 Well An insured depository institution significantly exceeds the because discount window advances capitalized required minimum level for each relevant capital measure could be used repeatedly to replace withdrawn private funds, leaving an in- Group 2 Adequately An insured depository institution meets the required mini- sufficient pool of sound collateral to capitalized mum level for each relevant capital measure cover eventual payments to the insured Group 3 Under- An insured depository institution fails to meet the required and uninsured claimants who remain in capitalized minimum for any relevant capital measure the bank. Arguably, a faster closure, Group 4 Significantly An insured depository institution is significantly below the prompted by a refusal of Federal undercapitalized required minimum for any relevant capital measure Reserve discount window credit, would make more of the bank's good Group 5 Critically An insured depository institution fails to meet any specified undercapitalized capital measure assets available at the time of liquidation or sale. "

Determining whether the Federal Even before the failure of Continental demanding that the FDIC, in its corpo- Reserve's use of extended credit in fail- Illinois in 1984 made bank rescue pol- rate capacity, repay outstanding ad- ing bank cases materially aided or icy a matter of public debate, it was vances, even after the failed entities harmed the public good is problematic, generally acknowledged that regulators were seized. " In those cases, the FDIC because there are no clear efficiency behaved as though they either already eventually repaid the Federal Reserve's standards against which the effort can were or properly ought to be authorized advances, including $3.5 billion repaid be evaluated. Studying the history of to rescue fully the uninsured claimants over five years for Continental Illinois the Federal Reserve's advances during on banks whose failure would pose un- (the largest amount and the longest for- June 1991, the House Banking Com- due risks to the U.S. banking system. bearance). Federal Reserve credit to the mittee concluded that, during the six Although the FDIC Act was amended FDIC enabled that agency to conserve its years covered (1985-90), the Reserve in 1982 to provide the agency with ex- cash at the time, but it did not reduce or Banks had made advances of extended plicit authority to lend to open insured cancel the FDIC's obligation to repay the credit to approximately 500 banks, banks to prevent their defaults or advance ultimately. with roughly 90 percent of those institu- "when severe financial conditions exist tions eventually failing during that period.14 During May and June 1991, which threaten the stability of a sig- The Reserve Banks' forbearances for the Congress began to consider measures nificant number of insured depository FDIC or advances to the FDIC's bridge to provide more specific guidance institutions or of insured depository in- banks (a type of successor entity occa- regarding regulators' attempts to pro- stitutions possessing significant finan- sionally administered by the FDIC when vide full coverage of uninsured cial resources" and the loans are made there is no acquiring bank at the time of claimants on failed banks, with par- "to lessen the risk to the [FDIC]... seizure of a failing bank) apparently have ticular attention paid to the too-big-to- posed by such insured depository in- not increased the final amount of ad- fail and systemic risk doctrines. stitution[s] under such threat of insta- vances outstanding at failure. In principle, bility," the Federal Reserve Banks' bridge banks can be created in which comparable lending authority has never uninsured depositors are not made whole, • FDICIA's Discount been codified specifically.' Neverthe- and the FDIC's assumptions of outstand- Window Provisions less, the Federal Reserve's participa- ing Reserve Bank advances need not in- The discount window provisions of tion in the resolution of large or "impor- fluence the agency's decisions regarding FDICIA are particularly significant tant" bank failures has been explained the standing of uninsured depositors in a when considered in the context of the as an essential bulwark against the failure resolution. But defenders of the Act's other provisions, especially those spread of this "systemic risk" in the more restrictive, traditional view of dis- pertaining to prompt corrective action. banking system.'' count window lending argue that lender- FDICIA mandates a set of capital of-last-resort advances to support the sol- strength categories for banks and re- vency (capital replacement) of, or to Another innovation in Federal Reserve quires bank supervisors to take progres- delay the closing of, insolvent banks are lending practice since the mid-1970s is sively stricter actions against banks as simply another way for regulators to ex- that, as with Franklin National (1974), their capital positions deteriorate (see tend de facto guarantees to uninsured Continental Illinois (1984), a few large box). These actions are designed to depositors and other creditors of the firm. Texas bank failures in 1988-89, and the encourage management and policy failures of the Bank of New England and changes at banks before failure be- James Madison Limited of Washington, In effect, these advances allow such comes imminent. As the federal bank D.C. (both in early 1991), the Federal claimants to get their money out of the supervisory agencies implement prompt Reserve Banks also refrained from bank at full value, thereby increasing the corrective action, the risk of eventual loss to either the Federal Reserve or the context, a regulatory determination that days in any 120-day period. This re- FDIC should be reduced even if the failure to repay uninsured claims of in- striction may be overridden only if the bank is subsequently closed and liqui- sured institutions at par "would have Reserve Bank receives advance written dated or merged. Some observers, for serious adverse effects on economic certification of the borrower's viability good reason, consider the specifications of conditions or financial stability" is re- from the head of its principal federal su- prompt corrective action to be FDICIA's quired to suspend the specified proce- pervisory authority or if, following an heart and soul, although it remains to dures for least-cost resolution. This examination of the borrower by the be seen how the statute's language is determination is based on criteria that Federal Reserve, the Chairman of the actually put into practice. reflect but are potentially broader than Board certifies in writing to the Reserve the prior criteria for FDIC open-bank Bank that the borrower is viable.19 FDICIA's discount window reforms, in assistance. Congress' view, add another layer of Section 142 of FDICIA alters the bor- taxpayer protection in troubled bank The systemic risk exception—Section rowing regime for undercapitalized in- resolutions by restricting the terms and 141(a)(l)(G)—was included in the stitutions (Groups 3-5; see box) as fol- condition's under which advances may least-cost resolution section of FDICIA lows: Group 3 or 4 institutions may be used to assist banks with weak capi- to provide regulatory flexibility to borrow from Reserve Banks for only tal positions and by forcing more public avoid redemption of uninsured claims 60 days in any 120-day period. Group accountability on all of the regulators at less than par in cases that the regula- 5 institutions may borrow for only five involved in such operations. Formally, tors believe might cause generalized days. The Board of Governors may the new discount window provisions financial instability. Congress restricted authorize advances in excess of the 60- do not become effective until Decem- the exercise of this discretion by requir- day limit for Group 3 or 4 institutions ber 19, 1993, two years after enact- ing that the Secretary of the Treasury by treating them like Group 5 institu- ment. However, at the time FDICIA (in consultation with the President) de- tions and by agreeing to bear any ex- was passed, the House Banking Com- termine that "action or assistance" cess loss arising from continuation of mittee observed that the Federal Re- under this exception "would avoid or the advances beyond the five-day limit serve had already altered its practices mitigate" the "adverse effects" of the that applies to Group 5 institutions. regarding extended credit.15 failure of each institution for which the The Board (not the Reserve Banks—at exception is invoked. Requests for the least, not directly) must repay losses Section 141 of FDICIA essentially limits systemic risk exception may be initiated arising from advances to Group 5 in- the too-big-to-fail doctrine and also for- by either the FDIC or the Board, but stitutions beyond the five-day limit to malizes procedures for recognizing sys- they must be approved by two-thirds of the FDIC, with its liability calculated temic risk exceptions to those limits. Ef- the FDIC's Board of Directors and two- as the lesser of the incremental amount fective January 1, 1995. the FDIC is thirds of the Board of Governors. advanced after the five-day period and explicitly prohibited from using its funds the interest received by the Reserve Banks on those advances. The Board to pay off more than the insured amount Section 141 also requires the FDIC to must report its losses under new Sec- of deposits and from paying creditors recover losses arising from the use of 6 tion 10B(b) to Congress within six other than depositors.' Section 312 of the systemic risk exception by a special months after they are incurred." FDICIA immediately prohibits the use of assessment against all members of the FDIC funds to repay at par depositors at appropriate fund (either the BIF or the foreign offices of U.S. banks, subject to Savings Association Insurance Fund). • Concluding Observations exceptions for systemic risk and the early Thus, BIF members will have an inter- The discount window provisions of resolution provisions of Section 143. est in preventing unwarranted use of FDICIA elaborated a new design for the However, Section 312 (c) also explicitly the exception because each surviving Federal Reserve's part of the bank failure permits Reserve Banks to make advances insured bank must pay for supervisors' resolution process by providing explicit that might be used to repay such foreign decisions to guarantee the claims of guidance and limits on the use of Reserve depositors as long as other applicable re- uninsured creditors at par. The Secre- Banks' advances. The general thrust of quirements of Section 142 are satisfied. tary of the Treasury is required to docu- these provisions is to tighten the lending ment the regulators' decisions on sys- criteria for undercapitalized institutions The systemic risk doctrine is a compar- temic risk and to submit detailed and to specify procedures that must be atively recent concern of regulators and reports to both the Senate and House used for advances to these institutions.21 is linked in most discussions to inter- Banking Committees. bank exposure and the too-big-to-fail If regulators wish to invoke systemic 17 doctrine. An exception to the FDlC's FDICIA extensively revised and renum- risk exceptions to the new least-cost least-cost resolution procedures that bered former Section 10(b) of the Fed- resolutions regime, FDICIA has estab- might affect the discount window lim- eral Reserve Act. The new section lished exacting and publicly account- itations of FDICIA was included in Sec- limits Reserve Bank advances to under- able procedures for those exceptions, tion 141 for "systemic risk." In this capitalized institutions to no more than 60 which previously were only remotely accountable to the political process. 8. See the discussions in Todd (1988, 1992), 16. This general rule gives rise, however, to FDICIA did not settle definitively the Hetzel (1991). Schwartz (1992). and Mayer some significant logical inferences. An anony- policy debate on the too-big-to-fail and (1992). pp. 260-325. Federal Reserve Regu- mous referee of this Commentary paraphrased lation A, 12 C.F.R. Section 201.5(a) (1992), systemic risk doctrines, together with those inferences quite well, as follows: provides as follows: "Credit for Capital Pur- other aspects of the theory of the lender In instances where critically undercapital- poses. Federal Reserve credit is not a substi- ized institutions are resolved without loss of last resort, but it certainly has nar- tute for capital." Schwartz (1992), p. 59, to the FDIC, all general creditors ob- rowed the scope of actions that describes the increased use of Reserve Banks' viously will receive full value. Moreover, regulators may take solely within their advances of extended credit to failing banks where losses are experienced. [Section as a blurring of the distinction between own discretion. 141 (a)(l)(E)(iii)]... gives the FDIC - liquidity and solvency. See also, on this latitude to fully protect uninsured deposi- point, U.S. House of Representatives tors in resolutions that take the form of • Footnotes (199 lc), p. 94, and Garsson (1991). [purchase and assumption transactions] 1. Most failing banks do not have Reserve 9. See Zweig( 1985), pp. 373,396. and ... which cost the FDIC no more than if Banks' advances outstanding at the closing; Sprague (1986), pp. 252-55. the institution had been liquidated. thus. Reserve Banks arc not necessary parties at most closings. 10. 12 U.S.C. Section 1823 (c)(l)(1992). 17. See. for example. Greenspan (1991), pp. These two conditions on FDIC open-bank as- 433-34. Todd and Thomson (1990). and Kauf- 2. See generally Sperof 1980) and In re sistance ("significant number" and "signifi- man (1992) for discussions on these topics. I Franklin National Bank. 381 F. Supp. 1390 cant financial resources") apparently are have been unable to find explicit references to (E.D.N.Y.), 1974. embryonic forms of the systemic risk and too- "systemic risk" in the pre-Corainental Illinois 3. The uncertainty surrounding the role of big-to-fail rationales, respectively. (1984) period. the too-big-to-fail doctrine in the failure 11. In regard to regulators' emerging sys- resolution process for the Bank of New 18. The new section was renumbered temic risk or contagion concerns, see Spero England and National Bank of Washington 10B(b) under Section 142 of FDICIA. arises from the fact that, at the time (1990- (1980), Sprague (1986), pp. 77-106, Todd 19. These certifications are renewable for 91). regulators were not required officially to and Thomson (1990). and Kaufman (1992). additional 60-day periods, but the authority announce that they were invoking it. 12. See Schwartz (1992), pp. 63-64. and to do so cannot be delegated by the head of In re Franklin National Bank. 381 F. Supp. 4. See, for example. U.S. House of Repre- the appropriate supervisory authority. 1390 (E.D.N.Y.), 1974. sentatives (1991 b), pp. 29-39. 20. In practice, the Board would repay 13. See Thomson (1990), p. 34. For a sim- 5. See analogous remarks of Senate Banking those losses by special assessments for its ex- ilar view of FDIC failure resolution policies Committee Chairman Donald Riegle upon in- penses on the Reserve Banks. See Section prior to the implementation of prompt correc- troducing the first Senate version of FDICIA, 10(3) of the Federal Reserve Act. tive action under FDICIA. see Caliguire and 5. 543. on March 5. 1991 (Congressional 21. The House Banking Committee's legis- Thomson (1987). However, for a thorough Record [ 1991 ], p. S2639). Comparable lative history report (U.S. House of Repre- explanation and sympathetic view of the statements also appear in U.S. House of Rep- sentatives [ 1991c], p. 105) states explicitly FDIC's procedures for deciding whether and resentatives (1991a), pp. 15-18,22-23. and that Section 141 of FDICIA "abolished" the how to close failing banks prior to FDICIA, (1991b). pp. 29-39. too-big-to-fail doctrine, but perhaps this is see Bovenzi and Muldoon (1990). For a de- too strong a conclusion. 6. See Schwartz (1992). U.S. House of Repre- scription of how the FDIC's procedures were sentatives (1991c). p. 94. and Garsson (1991). applied in the Perm Square case (1982). until 7. Both Schwartz (1992), pp. 61-65. and recently the largest payoff of an insured Hackley (1973), p. 194. discuss such histori- bank, see Zweig (1985). pp. 371-74. cal operation of the discount window. Hack- 14. U.S. Houseof Representatives(1991c). ley notes, citing language then in Regulation p. 94, Garsson (1991). and Schwartz (1992). A (but later dropped in 1980). that "ordinary" pp. 58-59.65. unavailability of Federal Reserve credit for extended periods would not preclude such 15. The House Banking Committee's legis- credit "to assist member banks in emergency lative history report on FDICIA notes that situations." but that language was not demon- "The Federal Reserve currently [written in strated to have been aimed solely or primarily November 1991] maintains a policy of not at loans in situations where the borrower's extending credit to nonviable depository insti- eventual failure was probable or certain. See tutions. The Committee expects the Federal also footnote 8, below. Reserve to adhere to this policy and refrain from making advances to institutions in situations where the Federal Reserve would likely suffer a loss on the loan." (U.S. House of Representatives [1991c], p. 105). • References Schwartz, Anna J. "The Misuse of the U.S. House of Representatives, Committee Bovenzi, John F., and Maureen E. Mul- Fed's Discount Window," Federal Reserve on Banking, Finance, and Urban Affairs. doon. "Failure-Resolution Methods and Bank of St. Louis, Review, vol. 74, no. 5 The Failure of the Bank of New England Policy Considerations," FDIC Banking (September/October 1992), pp. 58-69. Corporation and Its Affiliate Banks. Hear- Review, vol. 3, no. I (Fall 1990), pp. 1-11. ing. 102 Cong. I Sess.. Serial No. 102-49, Spero, Joan Edelman. The Failure of the June 13, 1991a. Caliguire, Daria B., and James B. Thom- Franklin National Bank. New York: Colum- son. "FDIC Policies for Dealing with Failed bia University Press, 1980. . Failure of Madison National and Troubled Institutions," Federal Reserve Bank. Hearing, 102 Cong. 1 Sess.. Serial Sprague, Irvine H. Bailout: An Insider's Bank of Cleveland, Economic Commentary, No. 102-38, May 31, 1991b. Account of Bank Failures and Rescues. October I, 1987. New York: Basic Books, 1986. . House Report No. 102-330. to Congressional Record, vol. 137, no. 37 accompany H.R. 3768. November 19. Thomson, James B. "Using Market Incen- (March 5. 1991), 102nd Congress, 1st Session. 1991c. [Legislative history report on House tives to Reform Bank Regulation and version of FDICIA.] Garsson, Robert M. "Gonzalez Says Fed Federal Deposit Insurance," Federal Actions Fueled the Bank Fund's Losses," Reserve Bank of Cleveland, Economic Zweig, Phillip L. Belly Up: The Collapse American Banker. June 12. 1991, p. 8. Review, 1990 Quarter 1, pp. 28-40. ofPenn Square Bank. New York: Crown Publishers. 1985. Greenspan, Alan. "Statement before Com- Todd, Walker F. "Lessons of the Past and mittee on Banking. Housing, and Urban Af- Prospects for the Future in Lender of Last fairs, U.S. Senate. April 23. 1991," Federal Resort Theory," Federal Reserve Bank of Resene Bulletin, vol. 77. no. 6 (June 1991), Cleveland. Working Paper 8805. August Walker F. Todd is an assistant general coun- pp. 430-43. 1988. Also in Proceedings of a Conference sel and research officer at the Federal on Bank Structure and Competition, Fed- Hackley, Howard H. Lending Functions of Resene Bank of Cleveland. The author eral Reserve Bank of Chicago (May 11-13. the Federal Reserve Banks: A History. thanks Joseph G. Hauhrich. Christopher J. 1988). pp. 533-77. Washington. D.C.: Board of Governors of Pike. Mark S. Sniderman, and James B. the Federal Reserve System, 1973. . "History of and Rationales for Thomson for helpful comments. the Reconstruction Finance Corporation," Hetzel, Robert L. "Too Big to Fail: The view's stated herein are those of the Federal Reserve Bank of Cleveland, Eco- Origins, Consequences, and Outlook," author and not necessarily those of the nomic Review. 1992 Quarter 4, pp. 22-35. Federal Reserve Bank of Richmond, Federal Resene Bank of Cleveland or of the Economic Review, vol. 77. no. 6 (Novem- , and James B. Thomson. "An Board of Governors of the Federal Reserve ber/December 1991). pp. 3-15. Insider's View of the Political Economy of S\stem. the Too Big to Fail Doctrine," Federal Re- Kaufman, George G. "Bank Contagion: serve Bank of Cleveland. Working Paper Theory and Evidence." Federal Reserve 9017. December 1990. Also in Public Bud- Bank of Chicago. Working Paper Series No. geting and Financial Management: An Inter- 92-13.June 1992. national Journal, vol. 3. no. 3 (1991), pp. Mayer, Martin. The Greatest-Ever Bank 547-617: and in Congressional Record, vol. Robbery: The Collapse of the Savings and 138.no. 102 (July 20. 1992). 102nd Con- Loan Industry. New York: Macmillan Co. gress. 2nd Session, pp. S9978-S9987. (Collier Books). 1992.

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