A comparative analysis of US policy initiatives and their implications in a credit crisis: The Depression Era of the 1920s in a twenty-first century context

Abstract

In the closing days of the recent current credit crunch, policymakers have been searching for solutions to make the global banking system more robust to withstand future crises. A range of options are presently under consideration, but principal concerns relate to three core issues: the adequacy of the capital bases of banks, the realisation that some banks are ‘too big to fail’ owing to the impact of failure on the wider economy, and the need to refocus lenders’ attention on the importance of the quality of the borrower as opposed to more abstract future cashflows derived from a project or line of business such as mortgages. This article considers the causes of a previous ‘credit crunch’, this being the banking crisis that preceded the Great Depression of the 1920s in the United States. Legislative responses by the US government at that time are evaluated in terms of potential applicability to the recent credit crunch. The article provides an informed analysis for marketing strategy formulation aimed at encouraging and promoting trust among banks themselves, and banks and their principal stakeholders. It argues that if new stakeholders or providers of additional bank capital are not forthcoming, formal legislative intervention may be the only solution available to regulators. In this regard, marketing and communications strategies take on a wholly new importance in promoting the stability of the international banking industry.