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Banking Stability

July 19, 1974

Report Outline
Signs of Strain in U.S. Banking System
Banking Expansion Since World War II
Outlook for Reform and Reassessment
Special Focus

Signs of Strain in U.S. Banking System

Financial Distress at Franklin National, Herstatt

The stability of the U.S. banking system has been taken for granted for decades, since the banks recovered from the collapse of the 1930s. But concern about the system has been building up behind the scenes, and now the assumption of stability is being questioned openly. Among bankers and their critics, concern has centered on three broad areas: aggressive expansion of the banking system, which has resulted in questionable practices; monetary and credit restraint imposed by the Federal Reserve Board in its fight on inflation, which can expose flaws in bank practices that might otherwise be obscured by easy bank credit; and international monetary and financial instability, aggravated by the oil crisis.

Potential weaknesses, previously seen mainly by the experts, were brought to public attention in May by the disclosure that Franklin National Bank in New York, the nation's 20th largest, was in financial distress. The well-publicized troubles of Franklin National have sent tremors through the financial community and shaken the public confidence on which the banking system depends. Jittery money markets have been swept by rumors that other banks and businesses are bordering on failure, reviving memories of widespread bank closings, financial collapse and economic depression in the 1930s.

Bankers dismiss fears of another such debacle. They point to safeguards built into the financial system after the 1929 crash and to the quick action taken by banking authorities to rescue Franklin National. David Rockefeller, chairman of Chase Manhattan Bank, and other banking leaders have said Franklin's problems are isolated. “I have no reason to believe the banking system in general is in jeopardy,” Rockefeller said shortly after Franklin's difficulties were made public. “It is strong.”

ISSUE TRACKER for Related Reports
Banking
Oct. 05, 2012  Euro Crisis
Jan. 20, 2012  Financial Misconduct
Jan. 13, 2012  ‘Occupy’ Movement
Oct. 24, 2008  Financial BailoutUpdated
Sep. 01, 2000  The Federal Reserve
Jun. 22, 1990  S&L Bailout: Assessing the Impact
Nov. 04, 1988  Behind the S&L Crisis
Apr. 26, 1985  New Era in Banking
Nov. 18, 1983  Bankruptcy's Thriving Business
Aug. 07, 1981  Banking Deregulation
Jul. 19, 1974  Banking Stability
Jul. 17, 1968  Banking Innovations
May 06, 1964  Monetary Policy in Prosperity
May 16, 1940  Revision of the Securities Acts
Feb. 27, 1937  Expansion of Branch Banking
Sep. 03, 1935  The Decline of Commercial Banking
Dec. 11, 1934  Proposals for a Government-Owned Central Bank
Sep. 12, 1934  Bank Reserves and Credit Inflation
Nov. 27, 1933  Bank Credit in Depression and Recovery
Aug. 12, 1933  Closed Banks and Banking Reform
Apr. 04, 1933  Unified Control of Banking
Apr. 09, 1932  The Glass Banking Bill
Mar. 24, 1932  The Guaranty of Bank Deposits
Apr. 17, 1930  The International Bank and the Gold Standard
Feb. 08, 1930  Branch Banking and Chain Banking
Apr. 29, 1929  Mergers of Banking Institutions
Oct. 28, 1927  The Federal Reserve Rate Controversy
May 21, 1927  Labor Banking and Finance Since 1920
Jan. 31, 1924  The Northwestern Bank Failures and the Attack on Treasury Savings Certificates
Dec. 01, 1923  Why State Banks Do Not Join the Federal Reserve System, the Effect on the System and the Issues Involved
Nov. 23, 1923  Branch Bank Controversy
BROWSE RELATED TOPICS:
Financial Institutions
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