This paper examines the mechanism through which banking sector distress affects the availability of credit. We use the experience of the United States during the Great Depression, a period of intense bank distress, to conduct our analysis. We utilize previously neglected data from a 1934 survey conducted by the Federal Reserve System of both banks and Chambers of Commerce regarding the availability of credit, and examine which aspects of the banking system collapse affected credit availability as indicated by the survey. A number of scholars have posited different ways that bank distress constrained credit availability and impacted economic activity during the 1930s; however, the empirical evidence regarding these channels is modest. In this study, we find that bank failures had the most dominant impact, but there is also some evidence for the importance of funding constraints from deposit outflows and of protracted deposit liquidation.

The Taliban and Al Qaeda operating from their safe haven in Pakistan have wreaked havoc on NATO forces in Afghanistan. The Afghanistan conflict, once thought of as a major success story, is quickly slipping through the cracks in the shadows of the war in Iraq. These terrorists groups have capitalized on the political instability, refugee population, and anti-western ideology of the tribal region along the border. Their various headquarters in Pakistan are capable of command and control of terrorist attacks in Afghanistan as well as internationally. Additionally, the porous borders make it easy for terrorists to cross the border, but NATO forces are forced to respect the sovereign border of Pakistan. These factors challenge NATO forces on a daily basis, and stability in this region is dependent on rendering this safe haven insignificant to terrorists' ability to wage war. NATO must use diplomatic, informational, and economic instruments of power to influence the government and people of Pakistan to rise up against the terrorists' safe havens in their country. Security of the border is also paramount to stop the flow of militants across the border. Continued efforts should be made to improve the security of this border even though the terrain and resources are limited. Until this safe haven is taken away from terrorist groups, victory will be exceedingly difficult in Afghanistan.