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Financial Crisis Inquiry Commission Preliminary Staff Report Too-Big-to-Fail Financial Institutions

Preliminary Staff Report, Governmental Rescues of ‘Too-Big-To-Fail’ Financial Institutions, August 31, 2010

  • “The purpose of this preliminary staff report is to describe governmental rescues of financial institutions during the decades leading up to the financial crisis and during the crisis itself. Section I provides an executive summary of the report. Section II describes how federal regulators justified their rescues of large, failing commercial banks prior to 1991 by invoking a rationale commonly referred to “too-big-to-fail” or TBTF. Section III discusses how Congress attempted to narrow the scope of the TBTF rationale in the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), and how TBTF considerations continued to affect the banking system despite FDICIA. Section IV focuses on two government-sponsored enterprises, Fannie and Freddie, and explains why those enterprises were viewed as presumptively TBTF prior to the financial crisis. As Section V explains, interventions by federal regulators in the capital markets between 1970 and 1998 raised questions about whether the federal government might be prepared to support large, nonbank financial institutions during a systemic crisis. Section VI describes how federal regulators and Congress greatly expanded the application of the TBTF policy and created new policy instruments to support large banks, Fannie, Freddie, and major nonbank financial institutions during the peak of the financial crisis in 2008 and 2009.”
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