The Lessons from the Banking Panics in the United States in the 1930s for the Financial Crisis of 2007-2008
AbstractIn this paper we revisit the debate over the role of the banking panics in 1930-33 in precipitating the Great Contraction. The issue hinges over whether the panics were illiquidity shocks and hence in support of Friedman and Schwartz (1963) greatly exacerbated the recession which had begun in 1929, or whether they largely reflected insolvency in response to the recession caused by other forces. Based on a VAR and new data on the sources of bank failures in the 1930s from Richardson (2007), we find that illiquidity shocks played a key role in explaining the bank failures during the Friedman and Schwartz banking panic windows. In the recent crisis the Federal Reserve learned the Friedman and Schwartz lesson from the banking panics of the 1930s of conducting expansionary open market policy to meet demands for liquidity. Unlike the 1930s the deepest problem of the recent crisis was not illiquidity but insolvency and especially the fear of insolvency of counterparties.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16365.
Date of creation: Sep 2010
Date of revision:
Note: DAE ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Simon G. Gilchrist & Ben Bernanke & Mark Gertler, 1994.
"The financial accelerator and the flight to quality,"
Finance and Economics Discussion Series
94-18, Board of Governors of the Federal Reserve System (U.S.).
- Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1994. "The Financial Accelerator and the Flight to Quality," NBER Working Papers 4789, National Bureau of Economic Research, Inc.
- David C. Wheelock, 1995. "Regulation, market structure and the bank failures of the Great Depression," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 27-38.
- Tallman, Ellis W & Wicker, Elmus R., 2009.
"Banking and Financial Crises in United States History: What Guidance can History Offer Policymakers?,"
21839, University Library of Munich, Germany.
- Ellis W. Tallman & Elmus R. Wicker, 2010. "Banking and financial crises in United States history: what guidance can history offer policymakers?," Working Paper 1009, Federal Reserve Bank of Cleveland.
- Gary Richardson & William Troost, 2006. "Monetary Intervention Mitigated Banking Panics During the Great Depression: Quasi-Experimental Evidence from the Federal Reserve District Border in Mississippi, 1929 to 1933," NBER Working Papers 12591, National Bureau of Economic Research, Inc.
- Gary Richardson, 2006. "Correspondent Clearing and the Banking Panics of the Great Depression," NBER Working Papers 12716, National Bureau of Economic Research, Inc.
- repec:reg:wpaper:41 is not listed on IDEAS
- Richardson, Gary, 2007. "Categories and causes of bank distress during the great depression, 1929-1933: The illiquidity versus insolvency debate revisited," Explorations in Economic History, Elsevier, vol. 44(4), pages 588-607, October.
- Mark Carlson & Kris James Mitchener, 2007.
"Branch Banking as a Device for Discipline: Competition and Bank Survivorship During the Great Depression,"
NBER Working Papers
12938, National Bureau of Economic Research, Inc.
- Mark Carlson & Kris James Mitchener, 2009. "Branch Banking as a Device for Discipline: Competition and Bank Survivorship during the Great Depression," Journal of Political Economy, University of Chicago Press, vol. 117(2), pages 165-210, 04.
- repec:cup:jechis:v:44:y:1984:i:01:p:119-138_03 is not listed on IDEAS
- Gary B. Gorton, 2010. "Questions and Answers about the Financial Crisis," NBER Working Papers 15787, National Bureau of Economic Research, Inc.
- Mark Carlson, 2008. "Alternatives for distressed banks and the panics of the Great Depression," Finance and Economics Discussion Series 2008-07, Board of Governors of the Federal Reserve System (U.S.).
- Alex Klein & Keisuke Otsu, 2013. "Efficiency, Distortions and Factor Utilization during the Interwar Period," Studies in Economics 1317, Department of Economics, University of Kent.
- repec:cge:warwcg:146 is not listed on IDEAS
- Klein, Alexander & Otsuy, Keisuke, 2013. "Efficiency, Distortions and Factor Utilization during the Interwar Period," CAGE Online Working Paper Series 147, Competitive Advantage in the Global Economy (CAGE).
- Bagliano, Fabio C. & Morana, Claudio, 2012.
"The Great Recession: US dynamics and spillovers to the world economy,"
Journal of Banking & Finance,
Elsevier, vol. 36(1), pages 1-13.
- Fabio C. Bagliano & Claudio Morana, 2010. "The Great Recession: US dynamics and spillovers to the world economy," ICER Working Papers - Applied Mathematics Series 34-2010, ICER - International Centre for Economic Research.
- Fabio C. Bagliano & Claudio Morana, 2010. "The Great Recession: US dynamics and spillovers to the world economy," Working papers 17, Former Department of Economics and Public Finance "G. Prato", University of Torino.
- Fabio Bagliano & Claudio Morana, 2010. "The Great Recession: US dynamics and spillovers to the world economy," CeRP Working Papers 103, Center for Research on Pensions and Welfare Policies, Turin (Italy).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.