Europe’s Bankers Forget Lessons of the Depression

Historians of economics suggest that rapid, coordinated easing of monetary policy would have lessened the Depression’s ravages in the 1930s. Yet Europe’s central bankers repeat some of the errors from 80 years ago, argues Liaquat Ahamed in an opinion essay for the Financial Times. Central bankers of the1930s were more insular than modern bankers, Ahamed explains; they had fewer government ties and less understanding of economic principles. Ahamed lists intractable conditions for both sets of bankers: a crisis of global proportions, undercapitalized institutions, fears that any actions could undercut confidence and “the lack of an institution within Europe with a clear mandate to act as lender of last resort to the financial system.” Should a major bank collapse, similar to the 2008 collapse of Lehman Brothers, Europe’s handful of central banks likely won’t be as nimble as the US Federal Reserve – swiftly guaranteeing trillions of dollars in money market funds and other uninsured investments, to maintain system confidence and eliminate panic. – YaleGlobal