Did doubling reserve requirements cause the recession of 1937-1938? a microeconomic approach

In 1936-37, the Federal Reserve doubled the reserve requirements imposed on member banks. Ever since, the question of whether the doubling of reserve requirements increased reserve demand and produced a contraction of money and credit, and thereby helped to cause the recession of 1937-1938, has been a matter of controversy. Using microeconomic data to gauge the fundamental reserve demands of Fed member banks, we find that despite being doubled, reserve requirements were not binding on bank reserve demand in 1936 and 1937, and therefore could not have produced a significant contraction in the money multiplier. To the extent that increases in reserve demand occurred from 1935 to 1937, they reflected fundamental changes in the determinants of reserve demand and not changes in reserve requirements.Money supply ; Bank reserves ; Recessions

Phylogenetic signals in detoxification pathways in Cyprinid and Centrarchid species in relation to sensitivity to environmental pollutants

Observations in a previous study on biomarker responses in fish collected from urban creeks in Greenville, SC, indicated that there might be considerable differences in the expression of biotransformation enzymes in chub and sunfish species. To further investigate these species differences a dosing experiment was performed in which bluehead and creek chub (Nocomis leptocephalus and Semotilus atromaculatus), and redbreast sunfish, pumpkinseed, and bluegill (Lepomis auritus, L. gibbosus, and L. macrochirus) were injected with benzo[a]pyrene (BaP) as a model compound for common pollutants in urban creeks. Fish were injected with BaP doses of 0, 25 and 50 mg/kg, and after 3 days BaP metabolites in bile, and enzymatic activities of cytochrome P450-1A (CYP1A), UDP-glucuronosyltransferase (UGT) and glutathione S-transferase (GST) were measured. CYP1A activity was significantly increased after BaP dosing in both species groups, but chubs had significantly lower levels than were observed in the dosed sunfish. The UGT activity in unexposed animals was comparable in both species groups, and significantly increased in both groups as a result of BaP dosage. Finally, GST activity was significantly higher in chubs, but did not change in either species group as a result of BaP exposure. There were no significant differences between species within each species group, and the results confirmed that unexposed chubs have much lower CYP1A activity, but a much higher GST activity than unexposed sunfish. The metabolized BaP was excreted in both species groups, but at the time of sampling there were no differences in the amount of BaP metabolites in the bile of dosed animals. The differences in baseline enzyme activity and induction capacity between both species groups are an example of phylogenetically determined differences between fish families, and may explain why chubs are in general more sensitive to exposure to environmental pollutants than sunfish. This conclusion was corroborated by the observation that the highest BaP dose of 50 mg/kg was close to the apparent LC50 for chub, while no mortality was observed in the sunfish at this dose

Was the Great Depression a Watershed for American Monetary Policy?

The Great Depression changed the institutions governing monetary policy. These changes included the departure from the gold standard, an opening of a a new avenue for monetizing government debt, changes in the structure of the the Federal Reserve System, and new monetary powers of the Treasury. Ideo- logical changes accompanied institutional changes. We examine whether and how thes changes mattered for post-Depression monetary policy. With regard to the period 1935-1941, the tools of Fed policy, but not its goals or tactics, changed. But structural reforms weakened the Federal Reserve relative to the Treasury, and removed a key limit on the monetization of government debt. The increased power of the Treasury to determine the direction of policy, along with the departure from gold and the new ment debt produced a new (albeit small) inflationary bias in monetary policy that lasted until the Treasury-Fed Accord of 1951. The Fed regained some independence with the Accord of 1951. The Fed returned to its traditional pre-Depression) operating methods, and the procyclical bias in these procedures--along with pressures to monetize government debt--explains how the Fed stumbled into an inflationary policy in the 1960s. Depression-era changes--especially the departure from the gold standard in 1933 and the relaxation of an important constraint on deficit monetization in 1932--made this inflationary policy error possible, and contributed to the persistence of inflationary policy.

Strategic responses to global challenges: The case of European banking, 1973–2000

In applying a strategy, structure, ownership and performance (SSOP) framework to three major clearing banks (ABN AMRO, UBS, Barclays), this article debates whether the conclusions generated by Whittington and Mayer about European manufacturing industry can be applied to the financial services sector. While European integration plays a key role in determining strategy, it is clear that global factors were far more important in determining management actions, leading to significant differences in structural adaptation. The article also debates whether this has led to improved performance, given the problems experienced with both geographical dispersion and diversification, bringing into question the quality of decision-making over the long term

On the Computational Complexity of Measuring Global Stability of Banking Networks

Threats on the stability of a financial system may severely affect the functioning of the entire economy, and thus considerable emphasis is placed on the analyzing the cause and effect of such threats. The financial crisis in the current and past decade has shown that one important cause of instability in global markets is the so-called financial contagion, namely the spreading of instabilities or failures of individual components of the network to other, perhaps healthier, components. This leads to a natural question of whether the regulatory authorities could have predicted and perhaps mitigated the current economic crisis by effective computations of some stability measure of the banking networks. Motivated by such observations, we consider the problem of defining and evaluating stabilities of both homogeneous and heterogeneous banking networks against propagation of synchronous idiosyncratic shocks given to a subset of banks. We formalize the homogeneous banking network model of Nier et al. and its corresponding heterogeneous version, formalize the synchronous shock propagation procedures, define two appropriate stability measures and investigate the computational complexities of evaluating these measures for various network topologies and parameters of interest. Our results and proofs also shed some light on the properties of topologies and parameters of the network that may lead to higher or lower stabilities.Comment: to appear in Algorithmic

The Threat of Capital Drain: A Rationale for Public Banks?

This paper yields a rationale for why subsidized public banks may be desirable from a regional perspective in a financially integrated economy. We present a model with credit rationing and heterogeneous regions in which public banks prevent a capital drain from poorer to richer regions by subsidizing local depositors, for example, through a public guarantee. Under some conditions, cooperative banks can perform the same function without any subsidization; however, they may be crowded out by public banks. We also discuss the impact of the political structure on the emergence of public banks in a political-economy setting and the role of interregional mobility

Non-performing loans at the dawn of IFRS 9: regulatory and accounting treatment of asset quality

Asset quality is a key indicator of sound banking. However, it is difficult for banking regulators and investors to assess it in the absence of a common, cross-border scheme to classify assets. Currently no standard is applied universally to categorise loans, the most sizeable asset on banks’ balance sheets. As a corollary, definitions of nonperforming loans (NPLs), despite recent steps towards greater harmonisation, continue to vary between jurisdictions. This paper offers a comprehensive analysis of NPLs and considers variations in the treatment of NPLs across countries, accounting regimes, and firms. The paper relies on a multi-disciplinary perspective and addresses legal, accounting, economic and strategic aspects of loan loss provisioning (LLP) and NPLs. A harmonised approach to NPL recognition is particularly desirable, in view of the fact that IFRS 9, the new accounting standard on loan loss provisioning, will be mandatory from January 2018. IFRS 9 changes the relationship between NPLs and provisions, by relying on greater judgement to determine provisions. The potential for divergence makes the need for comparable indicators against which to assess asset quality all the greater

Deposit Insurance in General Equilibrium

We study the consequences and optimal design of bank deposit insurance in a general equilibrium model. The model involves two production sectors. One sector is financed by issuing bonds to risk-averse households. Firms in the other sector are monitored and financed by banks. Households fund banks through deposits and equity. Deposits are explicitly insured by a de- posit insurance fund. Any remaining shortfall is implicitly guaranteed by the government. The deposit insurance fund charges banks a premium per unit of deposits whereas the government finances any necessary bail-outs by lump-sum taxation of households. When the deposit insurance premium is actuarially fair or higher than actuarially fair, two types of equilibria emerge: One type of equilibria supports the socially optimal (Arrow-Debreu) allo- cation, and the other type does not. In the latter case, bank lending is too large relative to equity and the probability that the banking system collapses is positive. Next, we show that a judicious combination of deposit insurance and reinsurance eliminates all non-optimal equilibrium allocations