Federal reserve policy and transformation of the US banking system

Criticism of the Federal Reserve Board for not advancing rates earlier in 1919 to halt a rampant inflation is seldom as severe or nearly as devastating as the criticism heaped upon it for not easing credit sooner during the sharp but brief depression episode of 1920–1921. After the collapse of prices in May 1920, the immediate goal of Federal Reserve policy was to prevent a widespread financial crisis by maintaining the liquidity of the banking system. Congress had created the Federal Reserve System for the specific purpose of preventing a recurrence of the financial panics that had plagued our pre-World War I monetary experience. In 1920 the Federal Reserve Banks succeeded in this task by making funds freely available at relatively high discount rates. Somewhat surprising is the fact that there was no liquidation of bank credit nor decline in the money supply during the first six months of the downswing. Loans at commercial banks continued to increase, and member-bank indebtedness continued to rise. The action taken by System officials probably warded off what might easily have been the worst financial catastrophe in our history. Unfortunately, the policy they pursued, though successful in preventing a banking crisis, was inimical to a quick recovery of business activity. Inventory decumulation, particularly in the agricultural sector, was hampered by a bumper harvest and a railway transportation bottleneck which was not eliminated until October.

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The European central bank and the us federal reserve as lender of last resort

Panoeconomicus ◽

10.2298/pan1401059h ◽

2014 ◽

Vol 61 (1) ◽

pp. 59-78 ◽

Cited By ~ 3

Author(s):

Hansjörg Herr

Keyword(s):

Central Bank ◽

Federal Reserve ◽

Financial Stability ◽

European Central Bank ◽

Banking System ◽

Financial System ◽

Shadow Banking ◽

Lender Of Last Resort ◽

European Central ◽

The Us

Without a lender of last resort financial stability is not possible and systemic financial crises get out of control. During and after the Great Recession the US Federal Reserve System (Fed) and the European Central Bank (ECB) took on the role of lender of last resort in a comprehensive way. The Fed stabilised the financial system, including the shadow banking system. However, the chance to fundamentally restructure the financial system was not used. The ECB was confronted with sovereign debt crises and an incomplete integration of the European Monetary Union (EMU). It followed a kind of ?muddling through? to keep the Euro area together. In the EMU not only a fundamental restructuring of the financial system is needed but also a deeper economic and political integration. The Fed and the ECB both were the most important institutions to avoid repetition of the 1930s.

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Banking and Monetary Policy in American Economic History up to the Formation of the Federal Reserve

The Oxford Handbook of American Economic History, vol. 2 ◽

10.1093/oxfordhb/9780190882624.013.36 ◽

2018 ◽

pp. 257-276

Author(s):

Peter Rousseau

Keyword(s):

Federal Reserve ◽

Economic History ◽

Banking System ◽

The United States ◽

Central Banking ◽

Us Economy ◽

The Us ◽

Money Creation ◽

Private Banking ◽

National Banking System

The US economy developed from an agricultural one mired in debt to an engine of growth between 1790 and 1913. The nation’s bourgeoning financial system was at the heart of this transformation. Growing from three banks in 1790 to more than 22,000 in 1913, the United States became the worldwide leader in private banking. This path, however, was not always smooth, and experiments with various forms of money creation and regulation subjected the nation to periodic panics. Despite a number of missteps, the approach led to financial development and monetary stability. We review this history and key research that defines the literature. Topics include early central banking, free banking, the National Banking System, and the founding of the Federal Reserve. We also offer a guide to areas that now generate considerable research interest, including finance and growth, the roles of banks and other intermediaries, crises, and the rise of deposits.

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Russian Banking System under Conditions of Global Crisis

Voprosy Ekonomiki ◽

10.32609/0042-8736-2009-7-4-14 ◽

2009 ◽

pp. 4-14 ◽

Cited By ~ 1

Author(s):

G. Gref ◽

K. Yudaeva

Keyword(s):

Banking System ◽

Commodity Prices ◽

Financial Sector ◽

Banking Crises ◽

Economic Recovery ◽

Balance Sheets ◽

Current Economic Crisis ◽

Risk Appetite ◽

The Us ◽

The Face

Problems in the financial sector were at the core of the current economic crisis. Therefore, economic recovery will only become sustainable after taking care of the major weaknesses in the financial sector. This conclusion is relevant both for the US and UK - the two countries where crisis has started, and for other economies which financial institutions turned out to be fragile in the face of the swings in the risk appetite. Russia is one of the countries where the crisis has revealed serious deficiency in the financial sector. Our study of 11 banking crises during the last 25-30 years shows that sustainable economic recovery and decrease in the dependence on commodity prices will be virtually impossible without cleaning of balance sheets and capitalization of the financial sector.

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