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U.S. Bank System Shutdown considered SERIOUSLY in 2008?


Guest kumar
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In hindsight, closing US banking system and stock market for a few days might have been a better option to set the US financial system in order during financial crisis in 2008. Was this considered SERIOUSLY? If not, why?

 

Here is a link to a paper that summarizes how FDR handled banking system crisis in 1933 -

 

Why Did FDR’s Bank Holiday Succeed?

 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1013606

 

Abstract - After a month-long run on American banks, Franklin Delano Roosevelt proclaimed a Bank Holiday beginning March 6, 1933 that shut down the banking system. When banks reopened on March 13, 1933, depositors stood in line to return their hoarded cash. This paper traces the remarkable turnaround in the public’s confidence to the Emergency Banking Act, passed by Congress on March 9, 1933. Roosevelt used the emergency currency provisions of the Act to prod the Federal Reserve to create de facto deposit insurance in the reopened banks. The contemporary press confirms that the public recognized the implicit guarantee, and as a result, believed the President’s words in his first Fireside Chat on March 12, 1933, that the reopened banks would be safe. The public responded by returning more than half of their hoarded cash to the banks within two weeks and by bidding up stock prices on March 15, 1933, the first trading day after the Bank Holiday ended, by the largest ever one-day percentage price increase. The Bank Holiday and the Emergency Banking Act of 1933 reestablished the integrity of the payments system and demonstrated the power of credible regime-shifting policies

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….The nation’s stock exchanges also closed…..On March 15, 1933, the first day of trading after the extended closure, the New York Stock Exchange recorded the largest one-day percentage price increase ever….Contemporary observers considered the Bank Holiday and the Fireside Chat a one-two punch that broke the back of the Great Depression…..

 

We can draw three main conclusions from this episode: (1) Crisis management requires bold and decisive action; (2) Rhetoric alone will not solve the problem; there must be a substantive component to restore normal function; (3) The speed with which the Bank Holiday and the Emergency Banking Act of 1933 reestablished the integrity of the payments system demonstrates the power of credible regime-shifting policies.

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