The Young Fed: The Banking Crises of the 1920s and the Making of a Lender of Last Resort(Markets and Governments in Economic History)

About the Book

A new history of crisis responses in the central bank's formative years.

The long-standing description of the Federal Reserve as a "lender of last resort" refers to the central bank's emergency liquidity provision for financial entities in periods of crisis. As Mark Carlson shows, this function was foundational to how the Fed was designed but has, at times, proven challenging to implement. The Young Fed examines the origins of the Federal Reserve's emergency liquidity provision which, along with the setting of monetary policy, has become a critical responsibility.

Focusing on the Fed's response to the financial crises of the 1920s, Carlson documents the formative deliberations of central bank policymakers regarding how to assist banks experiencing distress; the lessons that were learned; and how those lessons shaped subsequent policies. Carlson depicts an early Fed that experimented with a variety of approaches to crises, ranging from bold spectacles featuring cash-filled armored cars to behind-the-scenes interventions to prevent inducing panics or bank runs. The Young Fed weaves previously unpublished material from the Fed archives into a watershed work in American economic history: a deeply sourced account of how the world's most important central bank became a lender of last resort.

Table of Contents:
Acknowledgments
List of Figures and Tables

Chapter 1. Introduction
Chapter 2. Background on the 1920s, the Banking System, and the Federal Reserve
Chapter 3. Tools to Respond to Financial Stress
Chapter 4. Philosophy Regarding Emergency Liquidity Support
Chapter 5. Case Studies of Federal Reserve Interventions
Chapter 6. The Experience of the Early 1920s and Changes in Lending Policies
Chapter 7. Parallels to Modern Times and Lessons for Today
Chapter 8. Conclusion

Appendix 1. Episodes of Emergency Liquidity Provision in the United States Prior to the Federal Reserve
Appendix 2. Subsequent Use of Currency Funds
Appendix 3. Federal Reserve and OCC Officials
Appendix 4. Actions by FRB Atlanta during the Early 1920s in a More Macroeconomic Context
Notes
References
Index

About the Author :
Mark Carlson is an economist and advisor for the Board of Governors of the US Federal Reserve System in Washington, DC.

Review :
"The Federal Reserve we know is the mature, dollar-spinning behemoth that holds short-term interest rates in the hollow of its hand. The Young Fed is the central bank’s coming-of-age story. . . .A formidable history." "The Young Fed is an outstanding introduction to the Federal Reserve's adolescence…a particularly rich exploration." "The Young Fed fills a large gap in our understanding of how officials in the early Federal Reserve System created and shaped their policy making toolset…Mark Carlson provides an excellent overview of the banking system and the economic structure of the United States in the1920s." "Carlson shows early Fed governors exercising wide discretion; he also shows them becoming more wary (and conservative) once they faced opposition from those who lost in the trade. Carlson’s question is whether those governors learned the wrong lessons." "The Young Fed [provides] a history of the Federal Reserve’s approach to emergency liquidity provision in the 1920s, describing the actions of policymakers, what circumstances led them to make the choices they made, and what they learned from the outcomes of those choices." “A pathbreaking book on central banking history, The Young Fed is the first detailed account of the mechanisms, motivations, and internal deliberations of the various Federal Reserve Banks during their formative first years. Written by a brilliant banking economist and financial historian, The Young Fed integrates sophisticated economic analysis with narrative, insightfully informing the discussion of central banking’s past.” “The Federal Reserve was created to serve as a lender of last resort for the financial system of the United States. For over a century, the Fed has struggled to balance multiple objectives and challenges of this role. Mark Carlson, a leading scholar on this topic, has written a terrific book showing how we can trace this struggle back to the beginning, with fascinating case studies of the Fed’s decisions about emergency lending in the 1920s.”