scholarly journals What Caused Chicago Bank Failures in the Great Depression? A Look at the 1920s

2016 ◽  
Vol 76 (2) ◽  
pp. 478-519 ◽  
Author(s):  
Natacha Postel-Vinay
Keyword(s):  
Risk Management ◽  
Great Depression ◽  
Liquidity Risk ◽  
Bank Failures ◽  
Balance Sheets ◽  
The Great Depression

This article reassesses the causes of Chicago state bank failures during the Great Depression by tracking the evolution of their balance sheets in the 1920s. I find that all banks suffered tremendous deposit withdrawals; however banks that failed earlier in the 1930s had invested more in mortgages in the 1920s. The main problem with mortgages was their lack of liquidity, not their quality. Banks heavily engaged in mortgages did not have enough liquid assets to face the withdrawals, and failed. This article thus reasserts the importance of pre-crisis liquidity risk management in preventing bank failures.

DID THE FED RESPOND TO LIQUIDITY SHORTAGE EPISODES DURING THE GREAT DEPRESSION?

2018 ◽  
Vol 22 (7) ◽  
pp. 1727-1749 ◽  
Author(s):  
Olivier Damette ◽  
Antoine Parent
Keyword(s):  
New York ◽  
Monetary Policy ◽  
Great Depression ◽  
Liquidity Risk ◽  
Conventional Wisdom ◽  
Credit Spreads ◽  
Open Market ◽  
The Great Depression ◽  
Econometric Evidence ◽  
Open Markets

The October 1929 crash led to a complete freeze of New York open markets. Studying the Fed monetary policy conduct in a nonlinear framework, using credit spreads between open market rates and the Fed's instrument rates as a proxy for liquidity risk, we present econometric evidence that the Fed was well aware of such risks as early as 1930, reacted to the financial stress and altered its monetary policy in consequence. Our outcomes revisit conventional wisdom about the presumed passivity of the Fed throughout the 30s.

scholarly journals Identifying the Effects of Bank Failures from a Natural Experiment in Mississippi during the Great Depression

2013 ◽  
Vol 5 (1) ◽  
pp. 81-101 ◽  
Author(s):  
Nicolas L Ziebarth
Keyword(s):  
Great Depression ◽  
Causal Effect ◽  
Bank Failures ◽  
Liquidity Provision ◽  
The Great Depression ◽  
Negative Effect ◽  
Quasi Experimental ◽  
Plant Level ◽  
Physical Output ◽  
Large Decline

I examine the causal effect of bank failures during the Great Depression using the quasi-experimental setup of Richardson and Troost (2009). The experiment is based on Mississippi being divided into two Federal Reserve districts, which followed different policies for liquidity provision. This translated into variation in bank failures across the state. Employing a plant-level sample from the Census of Manufactures, I find that banking failures had a negative effect on revenue stemming from a fall in physical output. I find no effect on employment at the plant-level and a large decline at the county-level. (JEL E32, E44, G21, G33, N12, N22, N92)

Bank Failures, The Great Depression, and Other “Contagious” Events

2019 ◽  
pp. 909-927
Author(s):  
Charles W. Calomiris
Keyword(s):  
Public Policy ◽  
Great Depression ◽  
Deposit Insurance ◽  
Policy Implications ◽  
Bank Failures ◽  
Historical Evidence ◽  
Lender Of Last Resort ◽  
Safety Nets ◽  
The Public ◽  
The Great Depression

Deposit withdrawal pressures on banks, which sometimes take the form of sudden runs, have figured prominently in the discussion of public policy toward banks and the construction of safety nets such as deposit insurance and the lender of last resort. This chapter examines historical evidence from the Great Depression, and other episodes, on the factors that prompted withdrawals, the discussion of contagious runs, and the public policy implications. The historical evidence is presented in detail and is connected to the debate over the proper roles of deposit market discipline via the threat of withdrawals, the insurance of deposits, and lender-of-last-resort support for banks facing withdrawal pressures.

The Household Balance Sheet and the Great Depression

1978 ◽  
Vol 38 (4) ◽  
pp. 918-937 ◽  
Author(s):  
Frederic S. Mishkin
Keyword(s):  
Great Depression ◽  
Aggregate Demand ◽  
Balance Sheet ◽  
Consumer Expenditure ◽  
Balance Sheets ◽  
The Great Depression ◽  
Transmission Mechanisms ◽  
Balance Sheet Effects ◽  
The Business Cycle ◽  
Demand Shifts

This paper focuses on changes in household balance sheets during the Great Depression as transmission mechanisms which were important in the decline of aggregate demand. Theories of consumer expenditure postulate a link between balance-sheet movements and aggregate demand, and applications of these theories indicate that balance-sheet effects can help explain the severity of this economic contraction. In analyzing the business cycle movements of this period, this paper's approach is Keynesian in character in that it emphasizes demand shifts in particular sectors of the economy; yet it has much in common with the monetarist approach in that it views events in financial markets as critical to our understanding of the Great Depression.

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