Proposals for Strengthening the National Banking System

Sprague, O. M. W.

doi:10.2307/1883491

Cited by 11 publications

(21 citation statements)

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“…In this section, we argue that some elements of our model can be connected to the debates that were taking place in the period of the National Banking System in the U.S. . We follow the discussion of the classic work by Sprague (1910aSprague ( , 1910b and the modern exposition and interpretation by Chari (1989). Sprague and Chari are mostly interested in banking crises and panics while we focus on liquidity provision more generally.…”

Section: Some Historical Backgroundmentioning

confidence: 99%

“…The blame was put on the practice of paying interest on the reserves deposited to the New York City banks. Sprague (1910b) writes "But this practice of paying interest on bankers' deposits, as it now obtains, has other and more far-reaching consequences. It is an important cause of the failure to maintain a reserve of lending power in periods of business activity and the fundamental cause of the failure" and "The abandonment of the practice of paying interest upon deposits will remove a great inducement to divide .…”

Section: Some Historical Backgroundmentioning

confidence: 99%

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A Theory of Liquidity and Regulation of Financial Intermediation

Farhi¹,

Golosov²,

Tsyvinski³

2007

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This paper studies a Diamond-Dybvig model of …nancial intermediation providing insurance against unobservable liquidity shocks in the presence of unobservable trades on private markets. We show that in this case competitive equilibria are ine¢ cient. A social planner …nds it bene…cial to introduce a wedge between the interest rate implicit in optimal allocations and the economy's marginal rate of transformation. This improves risk-sharing by reducing the attractiveness of joint deviations where agents simultaneously misrepresent their type and engage in trades on private markets. We propose a simple implementation of the optimum that imposes a constraint on the portfolio share that …nancial intermediaries need to invest in short-term assets. In the case of Diamond-Dybvig preferences, the optimal allocation coincides with the unconstrained optimum. For more general preferences, the optimal allocation does not coincide with the unconstrained optimum, and the direction of the policy intervention depends on the nature of the shocks in a manner that we precisely characterize.

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Section: Some Historical Backgroundmentioning

confidence: 99%

Section: Some Historical Backgroundmentioning

confidence: 99%

A Theory of Liquidity and Regulation of Financial Intermediation

Farhi¹,

Golosov²,

Tsyvinski³

2007

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“…13 In a series of papers published in the Quarterly Journal of Economics Sprague (1909bSprague ( , 1910aSprague ( , 1910bSprague ( , and 1910c was specific about what could be done in the way of improving the banking system and offered his plan for a central bank. 14 (1) National banks could be allowed to start savings departments that would invest in mortgages and issue time deposits to minimize the danger of runs.…”

Section: Sprague Offers Plan Bmentioning

confidence: 99%

O.M.W. Sprague (the man who “wrote the book” on financial crises) and the founding of the Federal Reserve

Rockoff

2015

Journal of Financial Stability

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“…Further, he believed that if banks issued their own notes with the same reserve requirements as for deposits the reserve drain would not occur, and the loss of gold would have to bear the full brunt of adjustment. He did, however, recognize that the National Bank System was prone to panics, which were not desirable, and therefore promoted (Sprague, 1910a, 1910b, 1910c, 1911) reform of that system so that it could respond to bank's liquidity needs in times of crisis.…”

Section: The National Bank System and Economists' Ideas For Reformmentioning

confidence: 99%

The Influence of Economists On the Federal Reserve Act

Caporale

2003

Scottish J Political Eco

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Many economists helped to lay the groundwork for the Federal Reserve. Some did important work analyzing the problems of the National Bank System and arguing for formation of a central bank in economics journals. At least as importantly, if not more so, some economists took an active role in the reform movement and provided help and advice with the actual Congressional bill. Among these are J. Lawrence Laughlin, who chaired a group that actively raised support for the Federal Reserve Act in Congressional districts, and H. Parker Willis, who served as an expert for the subcommittee which wrote the original draft of what became the Federal Reserve Act. More broadly, this episode illustrates the impact that intellectuals and ideas can have on actual events; the analysis contemporary economists did in academic journals and in more political activities before and after the panic of 1907 guided the actual formation of a working central bank (JEL B10, N21).

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Proposals for Strengthening the National Banking System

Cited by 11 publications

References 0 publications

A Theory of Liquidity and Regulation of Financial Intermediation

A Theory of Liquidity and Regulation of Financial Intermediation

O.M.W. Sprague (the man who “wrote the book” on financial crises) and the founding of the Federal Reserve

The Influence of Economists On the Federal Reserve Act

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