Calendrier du 11 avril 2018
Economic History Seminar
Du 11/04/2018 de 12:30 à 14:00
Salle R2-20, Campus Jourdan, 48 boulevard Jourdan, 75014 Paris
WHITE Eugene (Rutgers University)
Censored Success: How to Prevent a Banking Panic, the Barings Crisis of 1890 Revisited
Financial histories have treated the Barings Crisis of 1890 as a minor or pseudo-crisis, presenting no threat to the systems of payment or settlement and readily managed by following Bagehot’s LOLR rule. New evidence reveals that Barings Brothers, a SIFI, was a deeply insolvent institution. Just as its true condition was revealed and a full-scale panic was about to ignite, the Bank of England stepped in; but it did not respond as Bagehot recommended. While lending freely at a high rate on good collateral to other institutions, the Bank organized a pre-emptive lifeboat operation. Barings was split into a good bank that was recapitalized and a bad bank that had a prolonged but orderly liquidation supported by credit from the Bank. A financial crisis was thereby avoided, while steps were taken to mitigate the effects of moral hazard from this discretionary intervention. Contrary to the historical consensus for the pre-1914 era, central banks did not follow a strict Bagehot rule but exercised discretion when faced with the failure of a giant financial institution. Their success has led to a reading of history that has censored lessons in effective approaches to halting incipient crises.