A plaque remaining from the Big Apple Night Club at West 135th Street and Seventh Avenue in Harlem.

Above, a 1934 plaque from the Big Apple Night Club at West 135th Street and Seventh Avenue in Harlem. Discarded as trash in 2006.

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Entry from November 10, 2008
“Too big to fail” (TBTF)

Entry in progress—B.P.

The Financial Services Roundtable has been called a TBTF lobbying group or the “TBTF Consortium.”

Similar phrases include “too big to jail,” “too small to bail,” “too big to comply” and “too big to prosecute.”

Wikipedia: Too Big to Fail policy
The Too Big to Fail policy is the idea that in American banking regulation the largest and most powerful banks are “too big to (let) fail.” This means that it might encourage recklessness since the government would pick up the pieces in the event it was about to go out of business. The phrase has also been more broadly applied to refer to a government’s policy to bail out any corporation. It raises the issue of moral hazard in business operations.

Regulatory basis
Before 1950, U.S. federal bank regulators had essentially two options for resolving an insolvent institution: closure, with liquidation of assets and payouts for insured depositors, or purchase and assumption, encouraging the acquisition of assets and assumption of liabilities by another firm. A third option was made available by the Federal Deposit Insurance Act of 1950: providing assistance, the power to support an institution through loans or direct federal acquisition of assets, until it could recover from its distress. The statute limited the “assistance” option to cases where “continued operation of the bank is essential to provide adequate banking service.” Regulators shunned this third option for many years, fearing that if regionally- or nationally-important banks were thought to be generally immune to liquidation, markets in their shares would be distorted. Thus the assistance option was never employed during the period 1950-1969, and very seldom thereafter.

Continental Illinois case
Distress
The Continental Illinois National Bank and Trust Company experienced a fall in its overall asset quality during the early 1980s. Tight money, Mexico’s default and plunging oil prices followed a period when the bank had aggressively pursued commercial lending business, Latin American syndicated loan business, and loan participations in the energy sector. Complicating matters further, the bank’s funding mix was heavily dependent on large CDs and foreign money markets, which meant its depositors were more risk-averse than average retail depositors in the US. (...)

Acronym Finder
What does TBTF stand for?
Too Big To Fail

Cobbs, JL, “When Companies Get Too Big to Fail,” Business Week, January 27, 1975 p. 16.

Google News Archive
16 September 1976, News-Dispatch, “Corporate Power Unchecked” by Ralph Nader, pg. 4, col. 5:
It is doubtful whether an individual or small business would continue receiving such government support. But Lockheed, no matter what its crimes, is considered by government to be too big to fail.

Google Books
Business Environment and Public Policy:
Implications for management

By Rogene A. Buchholz
Englewood Cliffs, NJ: Prentice-Hall
1982
Pg. 137:
WHEN COMPANIES GET TOO BIG TO FAIL
By John Cobbs

Google News Archive
26 September 1984, Bangor (ME) Daily News, “Nader urges separate banks, insurance” by Emmet Meara, pg. 18, cols. 3-5:
ROCKPORT—Ralph Nader, considered by some to be the country’s most powerful non-elected official, was in Rockport Tuesday to gently savage the nation’s institutions.
(...)
Although Reagan ran under the freeenterprise banner, Nader continued, his administration has created “a new economy, under which we capitalize profits and socialize losses. He has turned the free enterprise system upside down.” Nader said it is “shocking that the Reagan Administration bought the argument that the banks were ‘too big to fail.’”

New York (NY) Times
How Justice Was Done In the Banking Bill
Published: August 23, 1987
To the Editor:
While you were criticizing the first banking legislation to clear Congress in five years, Paul A. Volcker, in his final weeks as Federal Reserve chairman, was urging Congress privately and publicly to pass the legislation. Fortunately, Congress took his advice. You shed a tear (editorial, Aug. 4) that ‘’Big banks will no longer be permitted to cross state lines by setting up ‘limited service’ subsidiaries that take deposits but don’t make loans.’’ Citicorp and friends will no longer be able to exploit an unintended loophole in the law and enter deposit-rich states like Florida - which would as soon live without their presence. But these big banks have the ultimate anticompetitive Government subsidy. They are too big to fail, and regardless how mismanaged they may become, the buck will stop with the taxpayer. Smaller banks, for better or worse, face the discipline of the free market system.
KENNETH A. GUENTHER
Executive Vice President Independent Bankers Assn. of America
Washington, Aug. 5, 1987

New York (NY) Times
Megabanks Pose a Serious Financial Threat
Published: August 26, 1987
To the Editor:
(...)
Even the general public has become conscious of the ‘’too big to fail’’ syndrome in banking. Yet here is a man often referred to as an Administration spokesman trying to sell the idea that ‘’bigger is safer.’’
(...)
NORBERT A. MCCRADY Executive Director State and National Affairs Independent Bankers of Minnesota
Minneapolis, Aug. 13, 1987

Google News Archive
10 September 1987, Warsaw (IN) Times-Union, “$970 Million Bailout: FDIC Rescues Bank,” pg. 19, col. 1:
“I suppose one of the criticisms that we’ll hear is that this isanother example ofthe too-big-to-fail syndrome,” said L. William Seidman, chairman of the FDIC, which gave the rescure preliminary approval Wednesday.
(First City Bancorp. of Texas—ed.)

New York (NY) Times
Greenspan Opposes Rescue Of Failing Securities Firms
By ROBERT D. HERSHEY Jr., Special to The New York Times
Published: March 02, 1990
The chairman of the Federal Reserve Board, Alan Greenspan, the first Government regulator called before Congress to discuss the bankruptcy of the Drexel Burnham Lambert Group, said today that the authorities would almost certainly refuse to rescue even the largest securities firms from the brink of collapse.

The notion that some financial institutions might be too big to fail ‘’is not good policy,’’ Mr. Greenspan told a House judiciary subcommittee.

OCLC WorldCat record
An insider’s view of the political economy of the too big to fail doctrine
by Walker F Todd; James B Thomson; Federal Reserve Bank of Cleveland. Research Dept.
Type:  Book : National government publication; English
Publisher: Cleveland, OH : Federal Reserve Bank of Cleveland, Research Dept., [1990?]

OCLC WorldCat record
Deposit insurance reform and too big to fail.
by George G Kaufman; Chicago Clearing House Association.;
Type:  Book : Conference publication; English
Publisher: [Chicago : s.n., 1991]

OCLC WorldCat record
Too Big to Fail? Walter Wriston and Citibank
by J Grant
Type:  Article; English
Publication: HARVARD BUSINESS REVIEW, 74, no. 4, (1996): 146-151

Posted by Barry Popik
New York CityBanking/Finance/Insurance • Monday, November 10, 2008 • Permalink