The impact of the failure of Continental Illinois and the too‐big‐to‐fail doctrine on changes in operating efficiency

Abstract

Outlines the US development of the “too‐big‐to‐fail” (TBTF) doctrine following the collapse of the Continental Illinois Bank, reviews relevant research and explores the impact on the efficiency of the banking system. Uses 1983‐1985 call report data, explains the methodology and presents the results, which analyse economies and diseconomies of scope and scale between different types of loans; and levels of inefficiency for TBTF and non‐TBTF banks. Shows that TBTF banks had the greatest increase in inefficiency following Continental’s failure but reduced this in the following year, as did small banks which did not benefit from complete depository coverage. Confirms that the TBTF doctrine increased stability for all banks, but particularly those covered by the doctrine.

Citation

Black, H.A., Cary Collins, M. and Robinson, B.L. (2000), "The impact of the failure of Continental Illinois and the too‐big‐to‐fail doctrine on changes in operating efficiency", Managerial Finance, Vol. 26 No. 2, pp. 42-56. https://doi.org/10.1108/03074350010766495