The Social Structure of Financial Crisis Governance, 1974 and 2008

Pierre-Christian Fink, Harvard University

Crises are moments of uncertainty in which existing routines no longer apply. Yet across some crises, patterns of governance repeat themselves. This article defines the conditions under which crisis governance is partially predictable, and identifies mechanisms operative in such cases. The argument is developed through a comparison of governance during the financial crises of 1974 and 2008, drawing on original archival research. In both cases, the institutional set-up led to the Federal Reserve becoming the leading institution in crisis governance. The Federal Reserve recombined forms of expertise from its two main departments (monetary policy and financial regulation) that are separate during normal times. As a consequence, it conceived of both crises as runs not on banks but on the money market, through which banks and other institutions increasingly fund themselves. Because the framing of the crisis as a money-market run implied even more risk—a disaster for the entire economy—than that of a bank run, the Federal Reserve hid its framing from Congress and the public. To solve the crisis, the Federal Reserve and its allies from banks and executive agencies sought to stabilize the money market by repurposing old tools to create so-called funding facilities. Only as a complement to this effort did bail-outs of banks take place.

No extended abstract or paper available

 Presented in Session 162. Fiscal & Monetary Politics