Does Bank Regulation Produce Stability? Lessons from the United States

  • George J. Benston

Abstract

Two aspects of stability should be distinguished: systemic stability and the stability of individual banks. The effect of the failure of individual banks on the stability of the financial system is considered first. This leads to the conclusion that the central bank alone can maintain systemic stability. Although individual bank failures may set off runs that result in multiple bank failures, this outcome can be prevented by central-bank actions, even when very large banks fail. The role of the Federal Reserve in preventing systemic collapse is then analysed and found wanting. Payments system risk also is considered; regulations that restrict branching have given the Fed a monopoly over nationwide check clearance, which has exacerbated the risk.

Keywords

Depression Insurance Coverage Stake Monopoly 

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Copyright information

© Forrest Capie and Geoffrey E. Wood 1991

Authors and Affiliations

  • George J. Benston

There are no affiliations available

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