Summary of Did the Founding of the Federal Reserve Affect the Vulnerability of the Interbank System to Systemic Risk?

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Did the Founding of the Federal Reserve Affect the Vulnerability of the Interbank System to Systemic Risk? summary
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As the US Federal Reserve finds itself in a damned-if-you-do-and-damned-if-you-don’t situation following the 2008 financial crisis, whereby its critics accuse it of either doing too much or doing too little, it’s illuminating to look into the history of the institution and how the presence of a lender of last resort has influenced bank soundness and liquidity in the United States. Economists Mark Carlson and David C. Wheelock weigh the question of whether the central bank has addressed the systemic deficiencies it aimed to tackle. getAbstract suggests this informative report to bankers, economists and economic historians for the perspective it provides on the Fed.

In this summary, you will learn

  • How the US banking system functioned prior to the establishment of the Federal Reserve,
  • What systemic deficiencies led to the need for a lender of last resort and
  • Whether the Federal Reserve has adequately addressed those deficiencies.
 

About the Authors

Mark Carlson is a principal economist with the Board of Governors of the Federal Reserve System. David C. Wheelock is the deputy director of research at the Federal Reserve Bank of St. Louis.

 

Summary

Before the 1914 creation of the Federal Reserve System, US banks handled payments among themselves and transferred money from regions with excess to those with dearth. Because banks mostly operated out of one location, they had to maintain relationships with other banks that facilitated this movement...

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