Monetary Intervention Mitigated Banking Panics during the.pdf

Monetary Intervention Mitigated Banking Panics during the Great Depression: Quasi- Experimental Evidence from a Federal Reserve District Border, 1929–1933 Gary Richardson University of California, Irvine and National Bureau of Economic Research William Troost University of Southern California The Federal Reserve Act divided Mississippi between the 6th (Atlanta) and 8th (St. Louis) Districts. During the Great Depression, these dis- tricts’ policies differed. Atlanta championed monetary activism and the extension of aid to ailing banks. St. Louis eschewed expansionary initiatives. During a banking crisis in 1930, Atlanta expedited lending to banks in need. St. Louis did not. Outcomes differed across districts. In Atlanta, banks survived at higher rates, lending continued at higher levels, commerce contracted less, and recovery began earlier. These patterns indicate that central bank intervention influenced bank health, credit availability, and business activity. We thank friends and colleagues for advice and encouragement. Dan Bogart, Michael Bordo, Jan Brueckner, Charles Calomiris, Michelle Garfinkel, Joseph Mason, Christina Romer, David Romer, Jean-Laurent Rosenthal, Eugene White, an anonymous referee, and participants in seminars at the Federal Deposit Insurance Corporation, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Chicago, Federal Reserve Bank of St. Louis, Federal Reserve Board of Governors, NBER Summer Institute, Rutgers University, George Mason University, University of California, Berkeley, University of California, Irvine, and Western Economics Association provided comments on earlier drafts. This material is based on work supported by the National Science Foundation under grant 0551232. Shagufta Ahmed, Shaista Ahmed, Ching-Yi Chung, Joanna Do, and William Troost provided ex- ceptional research ass