Financial Fragility without Banks

Stein Berre and Asani Sarkar

No 20230417, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Proponents of narrow banking have argued that lender of last resort policies by central banks, along with deposit insurance and other government interventions in the money markets, are the primary causes of financial instability. However, as we show in this post, non-bank financial institutions (NBFIs) triggered a financial crisis in 1772 even though the financial system at that time had few banks and deposits were not insured. NBFIs profited from funding risky, longer-dated assets using cheap short-term wholesale funding and, when they eventually failed, authorities felt compelled to rescue the financial system.

Keywords: nonbank financial institutions; nonbank financial institutions (NBFIs); crisis of 1772; financial intermediation; economic history (search for similar items in EconPapers)
JEL-codes: G01 G2 N00 (search for similar items in EconPapers)
Date: 2023-04-17
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-his, nep-mac and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://libertystreeteconomics.newyorkfed.org/2023 ... ility-without-banks/ Full text (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednls:95976

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Liberty Street Economics from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().