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Journal Article
The development of the Government Securities Clearing Corporation
Ingber, Jeffrey F. (2017-23-02)
Despite its vast size, liquidity, and global importance, the U.S. government securities market was one of the last major securities markets to benefit from centralized clearance and settlement services. The development of these services began in 1986 with the establishment of the Government Securities Clearing Corporation (GSCC)?now part of the Fixed Income Clearing Corporation, a unit of the Depository Trust & Clearing Corporation. This article traces the history of the GSCC. The author describes the state of the government securities market in the 1980s and the events that led to GSCC?s ...
Economic Policy Review , Issue 23-2 , Pages 33-50

Working Paper
Managing a New Policy Framework: Paul Volcker, the St. Louis Fed, and the 1979-82 War on Inflation
Wheelock, David C.; Kliesen, Kevin L. (2020-07-23)
In October 1979, Federal Reserve Chairman Paul Volcker persuaded his FOMC colleagues to adopt a new policy framework that i) accepted responsibility for controlling inflation and ii) implemented new operating procedures to control the growth of monetary aggregates in an effort to restore price stability. These moves were strongly supported by monetarist-oriented economists, including the leadership and staff of the Federal Reserve Bank of St. Louis. The next three years saw inflation peak and then fall sharply, but also two recessions and considerable volatility in interest rates and money ...
Working Papers , Paper 2020-022

Report
The first debt ceiling crisis
Garbade, Kenneth D. (2016-06-01)
In the second half of 1953 the United States, for the first time, risked exceeding the statutory limit on Treasury debt. This paper describes how Congress, the White House, and Treasury officials dealt with the looming crisis?by deferring and reducing expenditures, monetizing ?free? gold that remained from the devaluation of the dollar in 1934, and, ultimately, raising the debt ceiling.
Staff Reports , Paper 783

Working Paper
Interbank Connections, Contagion and Bank Distress in the Great Depression
Wheelock, David C.; Jaremski, Matthew; Calomiris, Charles W. (2019-01-01)
Liquidity shocks transmitted through interbank connections contributed to bank distress during the Great Depression. New data on interbank connections reveal that banks were much more likely to close when their correspondents closed. Further, after the Federal Reserve was established, banks? management of cash and capital buffers was less responsive to network risk, suggesting that banks expected the Fed to reduce network risk. Because the Fed?s presence removed the incentives for the most systemically important banks to maintain capital and cash buffers that had protected against liquidity ...
Working Papers , Paper 2019-001

Working Paper
Network Contagion and Interbank Amplification during the Great Depression
Richardson, Gary; Mitchener, Kris James (2016-03-15)
Interbank networks amplified the contraction in lending during the Great Depression. Banking panics induced banks in the hinterland to withdraw interbank deposits from Federal Reserve member banks located in reserve and central reserve cities. These correspondent banks responded by curtailing lending to businesses. Between the peak in the summer of 1929 and the banking holiday in the winter of 1933, interbank amplification reduced aggregate lending in the U.S. economy by an estimated 15 percent.
Working Paper , Paper 16-3

Working Paper
Sovereign Default in the US
Ergungor, O. Emre (2016-04-06)
In the absence of a judicial mechanism to reduce the debt burden of a sovereign member of our Union, the resolution process can be quick but perhaps too indifferent to the health, safety, and welfare of the affected residents. In this paper, I use evidence from the Arkansas state archives to provide a description of the events surrounding the default of the state in 1933. I examine the evolution of the negotiations, the outcomes, and the role of fiscal policy.
Working Papers (Old Series) , Paper 1609

Journal Article
Furnishing an “Elastic Currency”: The Founding of the Fed and the Liquidity of the U.S. Banking System
Carlson, Mark A.; Wheelock, David C. (2018)
This article examines how the U.S. banking system responded to the founding of the Federal Reserve System (Fed) in 1914. The Fed was established to bring an end to the frequent crises that plagued the U.S. banking system, which reform proponents attributed to the nation?s ?inelastic? currency stock and dependence on interbank relationships to allocate liquidity and operate the payments system. Reform advocates noted that banking panics tended to occur at times of the year when the demands for currency and bank loans were normally at seasonal peaks and money markets were at their tightest. ...
Review , Volume 100 , Issue 1 , Pages 17-44

Working Paper
Sowing the Seeds of Financial Imbalances: The Role of Macroeconomic Performance
Afanasyeva, Elena; Modugno, Michele; Lee, Seung Jung; Jerow, Sam (2020-04-07)
The seeds of financial imbalances are sown in times of buoyant economic growth. We study the link between macroeconomic performance and financial imbalances, focusing on the experience of the United States since the 1960s. We first follow a narrative approach to review historical episodes of significant financial imbalances and find that the onset of financial disturbances typically occurs when the economy is running hot. We then look for evidence of a statistical link between measures of macroeconomic conditions and financial imbalances. In our in-sample analysis, we find that strong ...
Finance and Economics Discussion Series , Paper 2020-028

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