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| After the experiences of Continental Illinois the idea that a bank could be too big to fail went out the window in the sense that banks had the ability to collapse. This statement rings true because large banks did fail during this period and their shareholders lost their holdings. The government stepped in to prevent extreme spillover affects that could be caused by widespread depositor runs, but the more important affect was psychological. Even though public confidence decreased toward the banking system all depositors were paid back and the situation never reached the levels of bank defaults that were seen in the depression.
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| The idea that large banks such as Continental were too big to fail was proven to be bogus, but one did learn that during this period in time there were banks that were large enough where in fact they were too big to liquidate. It would have been almost logistically impossible to liquidate such a large bank; the uninsured depositors would be caught waiting for their funds during potentially long proceedings which would be incredibly disruptive to the banking system.
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Revision as of 00:31, 5 November 2007
