Banking in the Twentieth Century

Throughout the history of economics there have been quite a few booms, bursts, crashes, panics, and crises. To examine each and every one of them would require a book of its own and already quite a few exist on the subject. Like most other aspects of life, the banking sector and its supervisors try to learn from their mistakes. For the majority of people, these mistakes, unfortunately, tend to have a strong impact on the overall economy and are usually dubbed as “crises”. The chapter begins with the panic of 1907 in the US, which underlined the need for an institution which would be in charge of guaranteeing that one bank’s money was as good as another’s, even when things go south. This need made the US charter a new “bank of banks”, the Federal Reserve, which would be the only issuer of the specie other banks would use. Next, the mother of all crises, the Great Depression is then examined, along with the policy actions (and inactions) which allowed it to last for more than five years. An important outcome of the Great Depression was the abandoning of the gold standard by most countries in the world and the setting of deposit insurance in the US. These two important and highly influential policy decisions are also examined. The chapter ends with an overview of the Bretton Woods system, along with a short overview of the reasons which led to its collapse and the secondary banking crisis in the UK, the first in which real estate was actively involved.