was in turn a major factor in precipitating the stock market crash. this interpretation of the events of the late 1920s is shared by the most knowledgeable students of the period, including keynes, friedman and schwartz, and other leading scholars of both the depression era and today. these and subsequent data are from board of governors ( 1943 ). monetary tightening was also motivated by concerns about outflows of gold to france, which had recently stabilized its currency ; see for example hamilton ( 1987 ). john maynard keynes ( 1930, p. 196 ), writing at the time, was quite explicit : “ nevertheless the high market - rate of interest which, prior to the collapse, the federal reserve system, in their effort to control the enthusiasm of the speculative crowd, caused to be enforced in the united states - and, as a result of the sympathetic self - protective action, in the rest of the world - played an essential role in bringing about the rapid collapse... thus i attribute the slump of 1930 primarily to the deterrent effects on investment of the long period of dear money which preceded the stock - market collapse, and only secondarily to the collapse itself. ” the early monetarist lauchlin currie ( 1934 ) expressed similar views. more recently, milton friedman and anna schwartz, in their monumental study of monetary policy in the united states, ( 1963, p. 290 ) wrote : “ nonetheless, there is no doubt that the desire to curb the stock market boom was the major if not dominating factor in [ federal ] reserve actions during 1928 and 1929... in the event [ the fed ] followed a policy which was too easy to break the speculative boom, yet too tight to promote healthy economic growth. in our view, the board should not have made itself an arbiter of security speculation or values and should have paid no direct attention to the stock market boom, any more than it did to the earlier florida land boom. ” in his classic study of the stock market crash of 1929, economic historian eugene white came to similar conclusions. he wrote ( 1990, p. 179 ), “ fearful of financial and economic dislocations, the federal reserve tried to restrain speculation first by direct pressure [ that is, on the banks ] and then by raising interest rates. these efforts had no discernible effect on the boom. it did however produce a general rise in interest rates that slowed the american economy and induced foreign central banks [ who were constrained by gold standard

or, alternatively, whether they only exist on paper. although i recognize that many other countries do not conduct on - site examinations for legal and other reasons, the federal reserve concurs with the position taken by the basle committee ’ s core principles that it is important for supervisors to perform some on - site supervision. ii. need for sound accounting and financial transparency the federal reserve believes that sound accounting and transparent financial information is a fundamental pillar of a strong banking - - and, indeed, financial - - system. transparency is essential for the market to be able to make decisions on an informed basis. the arms - length negotiations of informed investors and issuing banks provide the strongest market basis for the issuance and pricing of equity and debt securities, as well as loans. banking supervisors should strongly advocate transparency to aid effective supervision and market discipline. indeed, they can encourage the process directly through appropriate regulatory reporting requirements and even making all or part of those reports public. it is important for governments to allow market forces to reward prudent behavior and penalize excessive risk - taking. sound, well - managed firms can benefit if better disclosure enables them to obtain funds at risk premiums that accurately reflect lower risk profiles. inadequate financial disclosure, on the other hand, could penalize well - managed firms, or even countries, if market participants do not trust their ability to assess firms ’ or countries ’ fundamental financial strength. regulatory structures that overly protect banks from market forces, or that allow lax accounting and disclosure to disguise firms ’ financial problems, remove market discipline on banks and permit them to operate less efficiently. deposit insurance systems and the public safety net are examples of regulatory interference with market forces, despite their public benefit. they create a moral hazard by allowing institutions to take on what might be excessive risk without proportional fear that their ability to raise funds at favorable rates will be impaired. this is illustrated by the costly us savings and loan crisis of the 1980s. lax accounting and capital standards allowed economically insolvent institutions to continue operating and attracting insured deposits at attractive rates because the deposits were government insured. this, in turn, delayed government and public recognition of the scope of the problem and tremendously increased the cost of its resolution to the deposit insurance system and the american taxpayer. to be credible to global investors, accounting standards should be established by independent professional organizations and enforced by a combination of market discipline and national oversight authorities. particular to banking and the credibility of banks ’ financial statements is the establishment of prudent levels