Eugene White, who occasionally teaches “Global Perspectives” for us, has a neat new paper with Pierre Hautcoeur and Angelo Riva. This summary from the introduction makes the point (lightly edited):
[In] the panic of 1889, the Banque de France quickly intervened. The remedy for this banking crisis, the most severe in late nineteenth century France, was not a British-style lender of last resort operation but a divisive and contested intervention, resembling a modern “bailout.” The risk of moral hazard was mitigated [because] the banks, including their management and directors, immediately absorbed losses. Afterwards, many officials were purged and other penalties imposed. This surprisingly strong action seems to have sent the correct signal, and there was no major crisis in France for the next quarter century.
The paper was presented at the Carnegie-Rochester-NYU conference last week. There’s a link to it in the conference program.