The ‘‘too-big-to-fail’’ (TBTF) doctrine received widespread public attention in 1984 when U.S. bank regulators intervened in the case of Continental Illinois Bank because they feared that its failure might cause a systemic crisis. Comptroller of the Currency Todd Conover announced in congressional testimony that the government would not let the eleven largest banks fail. As applied to banks in the United States, the TBTF doctrine means that the organization may continue to exist, and insured depositors will be protected; but stockholders, subordinated debt holders, managers, and some general creditors may suffer losses. 1
Continental Illinois had assets of $41 billion, and it held the deposits and federal funds of more than 2,000 correspondent banks. Of that total, 200 had balances greater than their net worth (Kaufman, 1990). William Seidman, chairman of the FDIC at that time, said, ‘‘Nobody really knows what might happen if a major bank were allowed to default, and the opportunity to find out is not one likely to be appealing to those in authority or to the public’’ (Dale, 1992, 10).
The main concern with banks is that their widespread failure could