[PEN-L:30353] Re: RE: Re: RE: Re: Re: Re: congress and the banks

[Doug Henwood <dhenwood@xxxxxxxxx>]

Devine, James wrote:

> Michael Perelman writes:
> >  The local monopolies of banking -- especially in rural areas -- also
> >  tended to make the risks of banking failure more local.  Sort
> >  of like an electricity grid.  When it is more local, failures are more
> >  common, but localized.  When a more national system goes down ....
>
> I don't know if this is true or not. Back in the 1930s before the
> 1933 bank holiday, there was a massive "contagion effect" even
> though US banking was very localized: if any bank failed, it
> undermined faith in the entire system, encouraging withdrawal from
> all banks.

Small banks in the U.S. these days have no idea what to do with their
deposits locally. They lend them to big banks via the fed funds
markets.

Doug