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December 1986

Coping with Bank Failures: Some Lessons from the United States and the United Kingdom

by R. Alton Gilbert and Geoffrey E. Wood

The authors examine the history of banking panics and the evolution of government policies designed to eliminate them in the United Kingdom and the United States. The last U.K. banking panic occurred in 1866. In response to the panic, the Bank of England accepted the responsibility of acting as a lender of last resort—by increasing bank reserves when the public withdraws large shares of their deposits in the form of cash—and bank runs ceased to be a problem. In contrast, the United States experienced panics throughout the 19th and early 20th centuries. In response to these panics, the Federal Reserve System was established in 1917 and federal deposit insurance was established in 1933. Since 1993, although individual banks have failed, no banking panics have occurred in the United States.



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