In The Young Fed: The Banking Crises of the 1920s and the Making of a Lender of Last Resort, author Mark Carlson offers a well-researched account of the Federal Reserve’s handling of the twin challenges of agricultural downturns and banking panics in the 1920s. Rooted in extensive archival work, Carlson traces the evolution of the Fed’s role as a “lender of last resort,” a function that was never static but continually redefined based on circumstance and regional bank policy.
What stands out is Carlson’s vivid portrayal of early interventions, ranging from dramatic cash‑loaded armored cars dispatched to regional banks to discreet negotiations aimed at preventing a bank run from becoming more widespread. These episodes reveal an institution in experimentation mode, debating the limits of its mandate and tactical reach. Carlson also doesn’t shy away from complexity. He details how, during the recovery-driven 1920s, some Fed “discount window” lending resulted in losses. In one instance, cattle that were held as collateral and ultimately taken from some failed ranch banks ended up burdening reserve banks with unwieldy assets. Some of these teachable moments helped shape the gradual direction of the Fed.
One could argue that the whack-a-mole strategy that unfolded in the 1920s was unable to mitigate wider Depression-era bank runs. Decisions in the 1920s were often made at regional or even local Fed levels, and a more unified strategy on dealing with bank crises was still some time off. However, the evolution of the Fed was due in large part to those smaller 1920s-era panics and what was learned from them.
The Young Fed leans academic and a bit wonky on the economics and policy side. However, for those interested in banking history in the United States, this book is a cautionary tale about risk and crisis management in the financial sector.
MY RATING: 4.5
