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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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  • Michael Bordo & John Landon-Lane, 2010. "The banking panics in the United States in the 1930s: some lessons for today," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 26(3), pages 486-509, Autumn.
    • Handle: RePEc:oup:oxford:v:26:y:2010:i:3:p:486-509
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    File URL: http://hdl.handle.net/10.1093/oxrep/grq027
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    Cited by:

    1. Michael D. Bordo & John S. Landon-Lane, 2010. "The Global Financial Crisis of 2007-08: Is it Unprecedented?," NBER Working Papers 16589, National Bureau of Economic Research, Inc.
    2. Michael D. Bordo, 2014. "The Federal Reserve's Role: Actions Before, During, and After the 2008 Panic the Historical Context of the Great Contraction," Book Chapters, in: Martin Neil Baily & John B. Taylor (ed.), Across the Great Divide: New Perspectives on the Financial Crisis, chapter 6, Hoover Institution, Stanford University.
    3. Barry Eichengreen, 2016. "The Great Depression in a Modern Mirror," De Economist, Springer, vol. 164(1), pages 1-17, March.
    4. Nicholas Crafts & Peter Fearon, 2010. "Lessons from the 1930s Great Depression," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 26(3), pages 285-317, Autumn.
    5. Michael D. Bordo & John S. Landon-Lane, 2012. "The Global Financial Crisis: Is It Unprecedented?," Chapters, in: Maurice Obstfeld & Dongchul Cho & Andrew Mason (ed.), Global Economic Crisis, chapter 2, Edward Elgar Publishing.
    6. Hans Visser, 2014. "Geisst, Charles R.: Beggar thy neighbor. A history of usury and debt," Journal of Economics, Springer, vol. 111(1), pages 97-99, February.
    7. Bordo, M.D. & Meissner, C.M., 2016. "Fiscal and Financial Crises," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 355-412, Elsevier.
    8. Brownlees, Christian & Chabot, Ben & Ghysels, Eric & Kurz, Christopher, 2020. "Back to the future: Backtesting systemic risk measures during historical bank runs and the great depression," Journal of Banking & Finance, Elsevier, vol. 113(C).
    9. 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.
    10. Duca, John V., 2017. "The Great Depression versus the Great Recession in the U.S.: How fiscal, monetary, and financial polices compare," Journal of Economic Dynamics and Control, Elsevier, vol. 81(C), pages 50-64.
    11. 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," American Economic Review, American Economic Association, vol. 103(3), pages 61-65, May.

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