Arresting Banking Panics: Fed Liquidity Provision and the Forgotten Panic of 1929
AbstractScholars differ on whether Federal Reserve intervention mitigated banking panics during the Great Depression and in recent years. The last panic prior to the Depression sheds light on this debate. In April 1929, a fruit fly infestation in Florida forced the U.S. government to quarantine fruit shipments from the state and destroy infested groves. When Congress recessed in June without approving compensation for farmers, depositors in citrus growing regions began withdrawing deposits from banks, culminating in runs on institutions in the financial center of Tampa and surrounding cities. Using archival evidence, we describe how the Federal Reserve Bank of Atlanta halted the spread of the panic by rushing currency to member banks. Analysis based on a new micro-level database of commercial banks in Florida shows that bank failures would have been twice as high without the Fed’s intervention. The policy response of the Fed ended the panic and suggests that similar interventions by the Fed may have been useful during the Great Depression, even in cases where banks faced questions about their solvency.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16460.
Date of creation: Oct 2010
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Publication status: published as “Arresting Banking Panics: Fed Liquidity Provision and the Forgotten Panic of 1929” (with Mark Carlson and Gary Richardson) Journal of Political Economy (forthcoming) and NBER Working Paper 16460.
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Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
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