Shadowy Banks and Financial Contagion during the Great Depression: A Retrospective on Friedman and Schwartz

2013 ◽  
Vol 103 (3) ◽  
pp. 73-78 ◽  
Author(s):  
Kris James Mitchener ◽  
Gary Richardson
Keyword(s):  
New York ◽  
Great Depression ◽  
Federal Reserve ◽  
Banking System ◽  
Financial Contagion ◽  
Bank Failures ◽  
Government Bonds ◽  
Real Effects ◽  
The Great Depression ◽  
Banking Panics

This essay assesses whether network linkages within the banking system amplified the real effects of bank failures during the Great Contraction. In 1929, nearly all interbank deposits held by Federal Reserve member banks belonged to “shadowy” nonmember banks which were outside the regulatory reach of federal regulators. Regional banking panics in the early 1930s drained these interbank deposits from central reserve city banks. Money-center banks in Chicago and New York responded to volatile and declining interbank deposits by changing their asset composition. They reduced their lending to businesses and individuals, and increased their holdings of cash and government bonds.

AN INTERVIEW WITH PAUL A. VOLCKER

2001 ◽  
Vol 5 (3) ◽  
pp. 434-460 ◽  
Author(s):  
PERRY MEHRLING
Keyword(s):  
New York ◽  
World War Ii ◽  
Great Depression ◽  
Public Service ◽  
Federal Reserve ◽  
World View ◽  
Banking System ◽  
World War ◽  
The Great Depression ◽  
Rebuilding Effort

Paul A. Volcker has spent most of his life in public service, at the Treasury under President Kennedy (1962–1965) and then as Undersecretary for Monetary Affairs under President Nixon (1969–1974), as President of the Federal Reserve Bank of New York (1975–1979), and finally as Chairman of the Board of Governors of the Federal Reserve System under both President Carter and President Reagan (1979–1987). Born in 1927, his world view was formed by childhood experience of the Great Depression and World War II, times of great national trial that led ultimately to recommitment and reconstruction. He went into public service in order to be a part of the rebuilding effort, but it was his fate instead to be involved mainly in managing pressures that would ultimately lead to the breakdown of the Bretton Woods system internationally and the Glass–Steagall banking system domestically. Consequently, there is some sadness today when he looks back on his career, but there is also a sense of accomplishment. In spite of everything, there was no depression and there was no world war. The possibility and hope for progress in years to come remains alive.The interview took place in Volcker's office at Rockefeller Center in New York City. His fourth-floor windows look out over the sunken plaza to the gold-leafed statue of Prometheus stealing fire from the gods, and then on farther to the elegant GE building, which is familiar to anyone who has visited New York. Over the front entrance it is just possible to see the inscription adapted from Isaiah 33:6, “Wisdom and Knowledge shall be the stability of thy times.” It strikes me as an appropriate inscription for the building, reminding one that this most beautiful complex was built in the years of the Great Depression. Today, with the forthcoming interview in mind, it reminds me also of the stakes involved in the conduct of monetary policy.

Was the Bank Holiday of 1933 Caused by a Run on the Dollar?

1987 ◽  
Vol 47 (3) ◽  
pp. 739-755 ◽  
Author(s):  
Barrie A. Wigmore
Keyword(s):  
New York ◽  
Foreign Exchange ◽  
Federal Reserve ◽  
Deposit Insurance ◽  
Banking System ◽  
Domestic Currency ◽  
New Information ◽  
The Stability ◽  
Specific Timing

International, rather than domestic, causes of both the Bank Holiday of 1933 and the calm in the banking system that followed are emphasized here. New information on gold losses by the New York Federal Reserve, rather than domestic currency hoarding, serve to explain the Bank Holiday's specific timing. Expectations that Roosevelt would devalue the dollar stimulated much of the gold loss. I also argue that Roosevelt's restrictions on gold holdings and foreign exchange dealings and his devaluation of the dollar by 60 percent were more important to the stability of the banking system after the Bank Holiday than was deposit insurance.

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