The Lender of Last Resort: Lessons from the Fed's First 100 Years

FRB of St. Louis Working Paper No. 2012-056B

50 Pages Posted: 10 Nov 2012 Last revised: 3 Mar 2013

See all articles by Mark A. Carlson

Mark A. Carlson

Board of Governors of the Federal Reserve System

David C. Wheelock

Federal Reserve Bank of St. Louis - Research Division

Date Written: February 28, 2013

Abstract

We review the responses of the Federal Reserve to financial crises over the past 100 years. The authors of the Federal Reserve Act in 1913 created an institution that they hoped would prevent banking panics from occurring. When this original framework did not prevent the banking panics of the 1930s, Congress amended the Act to give the Federal Reserve considerably greater powers to respond to financial crises. Over the subsequent decades, the Federal Reserve responded more aggressively when it perceived threats to financial stability and ultimately to economic activity. We review some notable episodes and show how they anticipated in several respects the Federal Reserve’s responses to the financial crisis of 2007-09. We also discuss some lessons that can be learned from these responses and some of the challenges that face a lender of last resort.

Keywords: Federal Reserve, central banks, lender of last resort, banking panics, financial crises, discount window

JEL Classification: E58, G28, N12, N22

Suggested Citation

Carlson, Mark A. and Wheelock, David C., The Lender of Last Resort: Lessons from the Fed's First 100 Years (February 28, 2013). FRB of St. Louis Working Paper No. 2012-056B, Available at SSRN: https://ssrn.com/abstract=2173391 or http://dx.doi.org/10.2139/ssrn.2173391

Mark A. Carlson

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
(202) 452-3987 (Phone)
(202) 452-2301 (Fax)

David C. Wheelock (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

P.O. Box 442
St. Louis, MO 63166-0442
United States

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