The Lessons of 'Too Big to Fail'

Thirty years ago, on May 17, 1984, the Federal Deposit Insurance Corporation (FDIC) announced a multi-billion-dollar rescue of the failing Continental Illinois National Bank and Trust Company, following a run by the bank’s depositors. The FDIC also said it would protect creditors who were not normally shielded from a bank’s failure. The decision set a precedent that the global banking system is still trying to come to terms with—the idea of a financial institution that is “too big to fail.”

One of the 10 largest US banks at the time, with about $40 billion in assets, Continental Illinois represented the largest bank failure in American history until the financial crisis of 2007-08, when regulators again stepped in to rescue banks and other major financial companies.

“We thought that much of what happened in the most recent financial crisis was new, but there are a lot of parallels to Continental Illinois,” said Douglas Diamond (moderator), Merton H. Miller Distinguished Service Professor of Finance, Chicago Booth
John Cochrane, AQR Capital Management Distinguished Service Professor of Finance, Chicago Booth
John Dugan, partner at Covington & Burling LLP; former Comptroller of the Currency (2005-2010)
Roberta Romano, Sterling Professor of Law, and director, Yale Law School Center for the Study of Corporate Law
Paul Saltzman, president, The Clearing House Association; executive vice president and general counsel of The Clearing House Payments Company