
Contents
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7.I. Introduction: The Friedman and Schwartz Hypothesis and the Subsequent Debate 7.I. Introduction: The Friedman and Schwartz Hypothesis and the Subsequent Debate
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7.2. The Recent Debate over US Banking Panics in the 1930s: Illiquidity Versus Insolvency 7.2. The Recent Debate over US Banking Panics in the 1930s: Illiquidity Versus Insolvency
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7.2.1. Empirical evidence 7.2.1. Empirical evidence
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7.3. Why Did the US Have so Many Banking Panics? 7.3. Why Did the US Have so Many Banking Panics?
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7.3.1. Unit banking 7.3.1. Unit banking
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7.3.2. A lender-of-last-resort 7.3.2. A lender-of-last-resort
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7.3.3. Recent evidence 7.3.3. Recent evidence
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7.4. A Comparison of the Financial Crisis in the US to the 2007–08 Crisis 7.4. A Comparison of the Financial Crisis in the US to the 2007–08 Crisis
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7.5. The Recent Crisis in more Detail 7.5. The Recent Crisis in more Detail
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7.6. Conclusion: Some Policy Lessons from History 7.6. Conclusion: Some Policy Lessons from History
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7.6.1. Policies to prevent the next crisis 7.6.1. Policies to prevent the next crisis
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Bibliography Bibliography
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7 7 The Banking Panics in the United States in the 1930s: Some Lessons for Today
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Published:February 2013
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Abstract
This chapter discusses 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 crisis of the 1930s and provide evidence that the banking crises largely reflected liquidity shocks. In the recent crisis the Fed under Bernanke has learned well the lesson from the banking panics of the 1930s of conducting expansionary monetary policy to meet the demands for liquidity. However, unlike 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 bailouts.
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