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Arresting Banking Panics: Fed Liquidity Provision and the Forgotten Panic of 1929

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  • Mark Carlson
  • Kris James Mitchener
  • Gary Richardson

Abstract

Scholars 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 Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16460.

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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.
Handle: RePEc:nbr:nberwo:16460

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  1. Mark Carlson, 2010. "Alternatives for Distressed Banks during the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2-3), pages 421-441, 03.
  2. Christian Hellwig & Arijit Mukherji & Aleh Tsyvinski, 2005. "Self-Fulfilling Currency Crises: The Role of Interest Rates," NBER Working Papers 11191, National Bureau of Economic Research, Inc.
  3. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
  4. Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, December.
  5. Gary Richardson & William Troost, 2009. "Monetary Intervention Mitigated Banking Panics during the Great Depression: Quasi-Experimental Evidence from a Federal Reserve District Border, 1929-1933," Journal of Political Economy, University of Chicago Press, vol. 117(6), pages 1031-1073, December.
  6. Carlson, Mark, 2005. "Causes of bank suspensions in the panic of 1893," Explorations in Economic History, Elsevier, vol. 42(1), pages 56-80, January.
  7. repec:cup:jechis:v:44:y:1984:i:01:p:119-138_03 is not listed on IDEAS
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Cited by:
  1. Jonathan D. Rose, 2013. "The Prolonged Resolution of Troubled Real Estate Lenders during the 1930s," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 245-284 National Bureau of Economic Research, Inc.
  2. Jonathan D. Rose, 2012. "The prolonged resolution of troubled real estate lenders during the 1930s," Finance and Economics Discussion Series 2012-31, Board of Governors of the Federal Reserve System (U.S.).

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