Arresting Banking Panics: Fed Liquidity Provision and the Forgotten Panic of 1929

Mark Carlson, Kris James Mitchener and Gary Richardson

No 16460, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Scholars differ on whether Federal Reserve intervention mitigated banking panics during the Great Depression and in recent years. The last panic prior to the Depression sheds light on this debate. In April 1929, a fruit fly infestation in Florida forced the U.S. government to quarantine fruit shipments from the state and destroy infested groves. When Congress recessed in June without approving compensation for farmers, depositors in citrus growing regions began withdrawing deposits from banks, culminating in runs on institutions in the financial center of Tampa and surrounding cities. Using archival evidence, we describe how the Federal Reserve Bank of Atlanta halted the spread of the panic by rushing currency to member banks. Analysis based on a new micro-level database of commercial banks in Florida shows that bank failures would have been twice as high without the Fed's intervention. The policy response of the Fed ended the panic and suggests that similar interventions by the Fed may have been useful during the Great Depression, even in cases where banks faced questions about their solvency.

JEL-codes: E44 E58 G21 N22 (search for similar items in EconPapers)
Date: 2010-10
Note: DAE ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published as Arresting Banking Panics: Federal Reserve Liquidity Provision and the Forgotten Panic of 1929 Mark Carlson, Kris James Mitchener, and Gary Richardson Journal of Political Economy, Vol. 119, No. 5 (October 2011), pp. 889-924

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