of governors ( 1922 ) also suggest that the fed prevented a crisis from happening in 1920. see carlson ( forthcoming ). - 8outstanding. these challenges resulted in the fed strongly discouraging banks from continuous borrowing from the discount window and the adoption of a policy of encouraging a “ reluctance to borrow. ” 12 by 1926, the fed was explicit that borrowing at the discount window was meant to be short term. as i emphasize in slide 8, the federal reserve ’ s annual report for 1926 stated that while continuous borrowing by a member bank may be necessary, depending on local economic conditions, “ the funds of the federal reserve banks are primarily intended to be used in meeting the seasonal and temporary requirements of members, and continuous borrowing by a member bank as a general practice would not be consistent with the intent of the federal reserve act. ” 13 the late 1920s also highlighted fed concerns about the purpose of the borrowing. the fed sought to distinguish between “ speculative security loans ” and loans for “ legitimate business. ” 14 a staff reappraisal of the discount mechanism stated that “ [ t ] he controversy over direct pressure intensified in the latter part of the 1920s as an increasing flow of bank credit went into the stock market. ” 15 in short, the fed observed that some banks were becoming habitual borrowers from the discount window. it was concerned see shull ( 1971, pp. 33 – 34 ). see board of governors ( 1927, p. 4 ). in 1926, approximately one - third of all banks in the u. s. were member banks, holding about 60 percent of the total loans and investments for all banks ; see board of governors ( 1926 ). banks receiving charters from the federal government were required to become members of the federal reserve system while banks receiving charters from state governments had the option to become members. discount window borrowing was originally limited to federal reserve system member banks. the monetary control act of 1980 opened the window to all depository institutions. see gorton and metrick ( 2013 ). see anderson ( 1971, p. 137 ). in the statement, “ direct pressure ” refers to the fed policy of pressuring banks not to borrow from the window. congress may have shared some of those concerns, as the federal reserve act was amended in 1933 to include a passage in section 4 requiring reserve banks to be careful about speculative uses of the federal reserve credit. - 9that an overreliance on discount window borrowings would weaken banks and make them more prone

ben s bernanke : promoting research and development – the government ’ s role speech by mr ben s bernanke, chairman of the board of governors of the federal reserve system, at the conference on “ new building blocks for jobs and economic growth ”, washington dc, 16 may 2011. * * * i am pleased to speak at this conference on new building blocks for jobs and economic growth. the conference organizers have gathered an outstanding group of participants and have set an ambitious agenda. the topics you will address today and tomorrow, bearing on innovation and intangible capital, are central to understanding how we can best promote robust economic growth in the long run. i won ’ t have to spend much time convincing this audience of the importance of long - run economic growth. the nobel prize - winning economist robert e. lucas, jr., wrote that once one starts thinking about long - run growth and economic development, “ it is hard to think about anything else. ” 1 although i don ’ t think i would go quite that far, it is certainly true that relatively small differences in rates of economic growth, maintained over a sustained period, can have enormous implications for material living standards. a growth rate of output per person of 2 – 1 / 2 percent per year doubles average living standards in 28 years – about one generation – whereas output per person growing at what seems a modestly slower rate of 1 – 1 / 2 percent a year leads to a doubling in average living standards in about 47 years – roughly two generations. compound interest is powerful! of course, factors other than aggregate economic growth contribute to changes in living standards for different segments of the population, including shifts in relative wages and in rates of labor market participation. nonetheless, if output per person increases more rapidly, the prospects for greater and more broad - based prosperity are significantly enhanced. over long spans of time, economic growth and the associated improvements in living standards reflect a number of determinants, including increases in workers ’ skills, rates of saving and capital accumulation, and institutional factors ranging from the flexibility of markets to the quality of the legal and regulatory frameworks. however, innovation and technological change are undoubtedly central to the growth process ; over the past 200 years or so, innovation, technical advances, and investment in capital goods embodying new technologies have transformed economies around the world. in recent decades, as this audience well knows, advances in semiconductor technology have radically changed many aspects of our lives, from communication to health care. technological developments