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The banking panics in the United States in the 1930s: some lessons for today

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  • Michael Bordo
  • John Landon-Lane

Abstract

In this paper we discuss the lessons learned from the US banking panics in the 1930s for the response by the Federal Reserve to the crisis of 2008. We revisit the debate over illiquidity versus insolvency in the banking crises of the 1930s and provide empirical evidence that the banking crises largely reflected illiquidity shocks. In the recent crisis the Fed under Bernanke had well learned the lesson from the banking panics of the 1930s of conducting expansionary monetary policy to meet demands for liquidity. However, unlike in the 1930s, the deeper problem of the recent crisis was not illiquidity but insolvency and especially the fear of insolvency of counterparties. A number of virtually insolvent US banks deemed too big and too interconnected to fail were rescued by fiscal bail-outs. Copyright 2010, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oxrep/grq027
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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 26 (2010)
Issue (Month): 3 (Autumn)
Pages: 486-509

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Handle: RePEc:oup:oxford:v:26:y:2010:i:3:p:486-509

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Web page: http://oxrep.oupjournals.org/

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Cited by:
  1. Michael D. Bordo & Hugh Rockoff, 2013. "Not Just the Great Contraction: Friedman and Schwartz’s A Monetary History of the United States 1867 to 1960," NBER Working Papers 18828, National Bureau of Economic Research, Inc.
  2. Nicholas Crafts & Peter Fearon, 2010. "Lessons from the 1930s Great Depression," Oxford Review of Economic Policy, Oxford University Press, vol. 26(3), pages 285-317, Autumn.
  3. Rockoff, Hugh & White, Eugene N., 2012. "Monetary Regimes and Policy on a Global Scale: The Oeuvre of Michael D. Bordo," MPRA Paper 49672, University Library of Munich, Germany, revised May 2013.

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