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Bank Distress during the Great Depression: The Illiquidity-Insolvency Debate Revisited

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  • Gary Richardson

Abstract

During the contraction from 1929 through 1933, the Federal Reserve System tracked changes in the status of all banks operating in the United States and determined the cause of each bank suspension. This essay analyzes chronological patterns in aggregate series constructed from that data. The analysis demonstrates both illiquidity and insolvency were substantial sources of bank distress. Periods of heightened distress were correlated with periods of increased illiquidity. Contagion via correspondent networks and bank runs propagated the initial banking panics. As the depression deepened and asset values declined, insolvency loomed as the principal threat to depository institutions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12717.

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Date of creation: Dec 2006
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Handle: RePEc:nbr:nberwo:12717

Note: DAE ME
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  1. Richardson, Gary, 2006. "Records of the Federal Reserve Board of Governors in Record Group 82 at the National Archives of the United States," Financial History Review, Cambridge University Press, vol. 13(01), pages 123-134, April.
  2. Christina D. Romer, 1993. "The Nation in Depression," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 19-39, Spring.
  3. Lucia, Joseph L., 1985. "The failure of the bank of United States: A reappraisal," Explorations in Economic History, Elsevier, vol. 22(4), pages 402-416, October.
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Cited by:
  1. Mark Carlson, 2008. "Alternatives for distressed banks and the panics of the Great Depression," Finance and Economics Discussion Series 2008-07, Board of Governors of the Federal Reserve System (U.S.).

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