ECON 2200 Lecture Notes - Lecture 12: Federal Reserve System, Commercial Bank, National Monetary Commission
14 May 2018
School
Department
Course
Professor
ECON 2200
Lecture 12
Bank Reforms & the Federal Reserve System (read 383-387)
A. 1882 & 1890: More lenient requirements for NB charters
• Attempt to bring more banks under NB regulations
o Not very effective
▪ Even if they had gotten everyone to become a NB, it still
wouldn’t have helped with the problems, because there
was still no lender of last resort, etc.
B. Bank Panic & Depression of 1907 (Prior to this, there was the 1893
panic and the severe recession that followed that)
• Widespread suspension of payments
o Complete suspension of payment at many banks
▪ Things a bank can do to get more money in their vault to
ease pressure for deposits:
1. Call in call-loans
2. Sell off assets
3. Sell off bonds
4. OR suspend payment (ultimate severe response for
panics)
▪ In many cases suspension of payment lasted for as long
as two months at some banks
▪ Will cause a severe decline in M; this will cause a severe
cash shortage.
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