The Origins of Banking Panics
Interesting chapter on financial history, banks, and panics.
Introduction (Via Calomiris & Gorton)
The history of U.S. banking regulation can be written largely as a history of government and private responses to banking panics. Implicitly or explicitly, each regulator response to a crisis presumed a “model” of the origins of banking panics. The development of private bank clearing , the founding of the Federal Reserve System, the creation of the Federal Deposit Insurance Corporation, the separation of commercial and investment banking by the Glass-Steagall Act, and laws governing branch banking all reflect beliefs about the factors that contribute to the instability of the banking system.
Deposit insurance and bank regulation were ultimately successful in preventing banking panics, but it has recently become apparent that this success was not without costs. The demise of the Federal Savings and Loan Insurance Corporation and state sponsored thrift insurance funds and the declining competitiveness of U.S commercial banks have had a profound effect on the debate over proper bank regulatory policy. Increasingly, regulators appear to be seeking to balance the benefits of banking stability against the apparent costs of bank regulation.