Credit availability and the collapse of the banking sector in the 1930s
AbstractThis 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.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2011-38.
Date of creation: 2011
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-01 (All new papers)
- NEP-HIS-2011-11-01 (Business, Economic & Financial History)
- NEP-HME-2011-11-01 (Heterodox Microeconomics)
- NEP-MON-2011-11-01 (Monetary Economics)
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- Mitchener, Kris James, 2005. "Bank Supervision, Regulation, and Instability During the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 65(01), pages 152-185, March.
- Hugh Rockoff, 1993. "The Meaning of Money in the Great Depression," NBER Historical Working Papers 0052, National Bureau of Economic Research, Inc.
- Gary Richardson & William Troost, 2009. "Monetary Intervention Mitigated Banking Panics during the Great Depression: Quasi-Experimental Evidence from a Federal Reserve District Border, 1929-1933," Journal of Political Economy, University of Chicago Press, vol. 117(6), pages 1031-1073, December.
- Kupiec, Paul H. & Ramirez, Carlos D., 2013. "Bank failures and the cost of systemic risk: Evidence from 1900 to 1930," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 285-307.
- Mark A. Carlson & David C. Wheelock, 2012. "The lender of last resort: lessons from the Fed’s first 100 years," Working Papers 2012-056, Federal Reserve Bank of St. Louis.
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