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558 Notes to Chapter 2

Chapter 2
1. Ben Bernanke, written testimony before the FCIC, Hearing on Too Big to Fail: Expectations and
Impact of Extraordinary Government Intervention and the Role of Systemic Risk in the Financial Crisis,
day 1, session 1, September 2, 2010, p. 2.
2. Alan Greenspan, “The Evolution of Banking in a Market Economy,” remarks at the Annual Confer-
ence of the Association of Private Enterprise Education, Arlington, Virginia, April 12, 1997.
3. Charles Calomiris and Gary Gorton, “The Origins of Banking Panics: Models, Facts, and Bank
Regulation,” in Calomiris, U.S. Bank Deregulation in Historical Perspective (Cambridge: Cambridge Uni-
versity Press, 2000), pp. 98–100. Prior to the end of the Civil War, banks issued notes instead of holding
deposits. Runs on that system occurred in 1814, 1819, 1837, 1839, 1857, and 1861 (ibid., pp. 98–99).
4. R. Alton Gilbert, “Requiem for Regulation Q: What It Did and Why It Passed Away,” Federal Re-
serve Bank of St. Louis Review 68, no. 2 (February 1986): 23.
5. FCIC, “Preliminary Staff Report: Shadow Banking and the Financial Crisis,” May 4, 2010, pp. 18–
25.
6. Arthur E. Wilmarth Jr., “The Transformation of the U.S. Financial Services Industry, 1975–2000:
Competition, Consolidation, and Increased Risks,” University of Illinois Law Review (2002): 239–40.
7. Frederic S. Mishkin, “Asymmetric Information and Financial Crises: A Historical Perspective,” in
Financial Markets and Financial Crises, ed. R. Glenn Hubbard (Chicago: University of Chicago Press,
1991), p. 99; Wilmarth, “The Transformation of the U.S. Financial Services Industry, 1975–2000,” p. 236.
8. Federal Reserve Board Flow of Funds Release, table L.208. Accessed December 29, 2010.
9. Kenneth Garbade, “The Evolution of Repo Contracting Conventions in the 1980s,” Federal Reserve
Bank of New York Economic Policy Review 12, no. 1 (May 2006): 32–33, 38–39 (available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=918498). To implement monetary policy, the Fed-
eral Reserve Bank of New York uses the repo market: it sets interest rates by borrowing Treasuries from
and lending them to securities firms, many of which are units of commercial banks.
10. Alan Blinder, interview by FCIC, September 17, 2010.
11. Paul Volcker, interview by FCIC, October 11, 2010.
12. Fed Chairman Alan Greenspan, “International Financial Risk Management,” remarks before the
Council on Foreign Relations, November 19, 2002.
13. Richard C. Breeden, interview by FCIC, October 14, 2010.
14. Wilmarth, “The Transformation of the U.S. Financial Services Industry, 1975–2000,” p. 241 and
n. 102.
15. Thereafter, banks were only required to lend on collateral and set terms based upon what the mar-
ket was offering. They also could not lend more than 10% of their capital to one subsidiary or more than
20% to all subsidiaries. Order Approving Applications to Engage in Limited Underwriting and Dealing in
Certain Securities,” Federal Reserve Bulletin 73, no. 6 (June 1987): 473–508; “Revenue Limit on Bank-Inel-
igible Activities of Subsidiaries of Bank Holding Companies Engaged in Underwriting and Dealing in Se-
curities,” Federal Register 61, no. 251 (Dec. 30, 1996), 68750–56.
16. Julie L. Williams and Mark P. Jacobsen, “The Business of Banking: Looking to the Future,” Busi-
ness Lawyer 50 (May 1995): 798.
17. Fed Chairman Alan Greenspan, prepared testimony before the House Committee on Banking and
Financial Services, H.R. 10, the Financial Services Competitiveness Act of 1997, 105th Cong., 1st sess., May
22, 1997.
18. FCIC staff calculations.
19. FCIC staff calculations.
20. FCIC staff calculations using First American/CoreLogic, National HPI Single-Family Combined
(SFC).
21. This data series is relatively new. Those series available before 2009 showed no year-over-year na-
tional house price decline. First American/CoreLogic, National HPI Single-Family Combined (SFC).
22. For a general overview of the banking and thrift crisis of the 1980s, see FDIC, History of the Eight-
ies: Lessons for the Future, vol. 1, An Examination of the Banking Crises of the 1980s and Early 1990s
(Washington, DC: Federal Deposit Insurance Corporation, 1997).