To this day, I am grateful that we resolved that crisis with neither a bailout nor a failure. Over 20 years later, both these events still frame the too big to fail reform agenda. Faced with the failure of a large commercial bank, we chose to extend the safety net rather than run the very real risk of a systemic depositor run.
Our “near miss” with Salomon in 1991 presaged the enormous damage that would result from the failure of Lehman Brothers, another investment bank, in 2008. In fact, the dimension of the problem grew substantially over the years. Since 1991, the ratio of U.S. banking assets to annual gross domestic product in the United States has more than doubled, from 55 percent to 126 percent.