The life and death of the Second Bank of the United States is a cautionary tale about the exercise of monetary power.

The Federal Reserve System is America’s uneasy compromise between our dislike of concentrated financial power and our desire to promote efficiency in our national payments system. In fact, the Federal Reserve is the nation’s third attempt to establish a large national bank—what we now call...

Four views on the proper role of the lender of last resort are defined. Historical evidence is given on the causes of banking panics in the U.S. and other countries and the roles lenders of last resort played in resolving them.

Henry Thornton (1760-1815) and Walter Bagehot (1826-1877) laid down a set of rules for stopping banking panics and crises. Known collectively as the classical theory of the lender of last resort, those rule stressed (1) protecting the aggregate money stock, not individual institutions, (2)...

Arguably, eliminating suspensions of payments--periods when banks jointly refuse to convert their liabilities into outside money or other assets--was an important impetus for creating the Federal Reserve. Friedman and Schwartz suggest that a suspension in 1930 would have decreased the severity...