Consequently, when the Franklin National Bank collapsed in October of that year marking the largest U.S. bank failure ever up to that time the Fed felt safe in cutting the discount rate to avert a bankingpanic.
He believes the demonstration effect of what an exit looks like vivid television pictures across Europe of a bankingpanic and an economic collapse would dramatically reduce the likelihood that other countries would risk taking that route.
In any case, a massive net sale of securities that would be necessary to shrink total Fed assets to pre-crisis levels would sharply contract the money supply and likely produce panic in the banking and financial system.
We have been conditioned by experience to expect a panic when we hear of stress in the banking system, and in that context Europe may just be a distraction to the real threat facing the market.