Say Goodbye to the Fed You Once Knew

In the panic of 1907, a son of Italian immigrants turned American bank executive highlighted a truism of global finance. Having stockpiled liquid assets ahead of potential financial turmoil, Amadeo Giannini stemmed a run on his bank by displaying his bulked-up gold reserves to a nervous public, offering to convert customers' deposits into the precious metal at a time when other banks were refusing to do the same.

It was a move that insulated Bank of Italy, later to be renamed Bank of America Corp., from much market mayhem at the time and demonstrated the importance of maintaining liquid buffers in the financial system—an importance that was arguably forgotten in the runup to the recent financial crisis. In the years before 2008, reserves held at large U.K. banks had drifted from around 30 percent of their total assets to a mere 1 percent, for instance.