Liberty Street Economics

« | Main | »

October 5, 2012

Historical Echoes: “Too Big to Fail” Is One Big Phrase

Amy Farber

It’s a book! It’s an HBO film! It’s a T-shirt! It’s the subject of one of the two top quotes of 2009! The popular phrase “too big to fail” is associated with both the 2007 financial crisis and work on new legislation designed to prevent the recurrence of such a crisis. Although this phrase has become ubiquitous since 2007, it has been used to describe banks only since the mid-1980s. Actually, the phrase appeared even earlier, in the mid-1970s, in discussions of Lockheed Corporation.

Most sources say that the phrase was first used to describe bank size in the 1984 Congressional hearing “Inquiry into Continental Illinois Corp. and Continental Illinois National Bank.” The text (p. 300) from the hearing reads:

CHAIRMAN ST GERMAIN.  That is one of the prime reasons for these hearings. We have quite a few, but one of our principal reasons is we have to make a decision. Do we allow, ever, a large bank to fail?

. . .

MR. MCKINNEY.  With all due respect, I think seriously, we have a new kind of bank. And today there is another type created. We found it in the thrift institutions, and now we have given approval for a $1 billion brokerage deal to Financial Corporation of America.

Mr. Chairman, let us not bandy words. We have a new kind of bank. It is called too big to fail. TBTF, and it is a wonderful bank.

The Wikipedia entry for “Too Big to Fail,” referring to the text above, states that in 1984 Representative Stewart McKinney popularized the term “too big to fail” and that “the term had previously been used occasionally in the press.” However, the Wikipedia entry for Stewart McKinney says that he is credited with coining the phrase “too big to fail.”

It turns out that the Wikipedia entry for “Too Big to Fail” is the more accurate one. According to Gary Stern, former President of the Minneapolis Fed and coauthor of “Too Big to Fail: The Hazards of Bank Bailouts” (2004), “Although many attribute the genesis of the term too big to fail to congressional hearings on Continental Illinois, this was not the case. The print media had used the term in the context of the Continental bailout even before the congressional hearings.” He cites a July 30, 1984, Newsweek article, “The Continental Bailout.” (The hearings took place in September and October of 1984.) In 2009, Mr. Stern gave an interview about his book in which he discusses developments that have occurred since the book was written. At the beginning of the book is a breakdown (p.14; type “box 2-1” in the search box) of the use of the phrase with and without the banking context.

Journalist Daniel Gross wrote in a 2008 Newsweek article that Fernando J. St. Germain, the Chairman of the Subcommittee before which the 1984 congressional hearing was held, was the originator of the phrase. Mr. Gross may have been confused or misinformed by his research assistant—the layout of the transcript of the hearing is a bit puzzling (“Mr. Chairman” begins a line, but it is not capitalized, so it is not Chairman St. Germain speaking).

In 2008, in his New York Times “Language” column “Too Big to Fail or to Bail Out?” William Safire explains the origins of the phrase and its relationship to the phrases “bailout” and “moral hazard.” He mentions a 1975 Business Week article about Lockheed Corporation with the headline, “When Companies Get Too Big to Fail.”

A discussion of Continental Illinois can be found on the FDIC website as part of its 1997 study “History of the Eighties—Lessons for the Future.”  In addition, posted a playful piece on why the phrase is irresistible, including a nineteen-minute preview of the film, “Too Big to Fail,” based on the 2009 book by Andrew Ross Sorkin about the fall of Lehman. The preview includes lots of quality talking heads.

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

Amy Farber is a research librarian in the New York Fed’s Research and Statistics Group.

About the Blog

Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.

Liberty Street Economics does not publish new posts during the blackout periods surrounding Federal Open Market Committee meetings.

The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.

Economic Research Tracker

Image of NYFED Economic Research Tracker Icon Liberty Street Economics is available on the iPhone® and iPad® and can be customized by economic research topic or economist.

Economic Inequality

image of inequality icons for the Economic Inequality: A Research Series

This ongoing Liberty Street Economics series analyzes disparities in economic and policy outcomes by race, gender, age, region, income, and other factors.

Most Read this Year

Comment Guidelines


We encourage your comments and queries on our posts and will publish them (below the post) subject to the following guidelines:

Please be brief: Comments are limited to 1,500 characters.

Please be aware: Comments submitted shortly before or during the FOMC blackout may not be published until after the blackout.

Please be relevant: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post.

Please be respectful: We reserve the right not to post any comment, and will not post comments that are abusive, harassing, obscene, or commercial in nature. No notice will be given regarding whether a submission will or will
not be posted.‎

Comments with links: Please do not include any links in your comment, even if you feel the links will contribute to the discussion. Comments with links will not be posted.

Send Us Feedback

Disclosure Policy

The LSE editors ask authors submitting a post to the blog to confirm that they have no conflicts of interest as defined by the American Economic Association in its Disclosure Policy. If an author has sources of financial support or other interests that could be perceived as influencing the research presented in the post, we disclose that fact in a statement prepared by the author and appended to the author information at the end of the post. If the author has no such interests to disclose, no statement is provided. Note, however, that we do indicate in all cases if a data vendor or other party has a right to review a post.