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Crises and the Development of Economic Institutions: Some Microeconomic Evidence

Author

Listed:
  • Raghuram Rajan
  • Rodney Ramcharan

Abstract

This paper studies the long run effects of financial crises using new bank and town level data from around the Great Depression. We find evidence that banking markets became much more concentrated in areas that experienced a greater initial collapse in the local banking system. There is also evidence that financial regulation after the Great Depression, and in particular limits on bank branching, may have helped to render the effects of the initial collapse persistent. All of this suggests a reason why post-crisis financial regulation, while potentially reducing financial instability, might also have longer run real consequences.

Suggested Citation

  • Raghuram Rajan & Rodney Ramcharan, 2016. "Crises and the Development of Economic Institutions: Some Microeconomic Evidence," American Economic Review, American Economic Association, vol. 106(5), pages 524-527, May.
    • Handle: RePEc:aea:aecrev:v:106:y:2016:i:5:p:524-27
    Note: DOI: 10.1257/aer.p20161042
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    References listed on IDEAS

    as
    1. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(4), pages 803-832, December.
    2. Raghuram G. Rajan & Rodney Ramcharan, 2011. "Land and Credit: A Study of the Political Economy of Banking in the United States in the Early 20th Century," Journal of Finance, American Finance Association, vol. 66(6), pages 1895-1931, December.
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    Citations

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    Cited by:

    1. Jaremski, Matthew & Richardson, Gary & Vossmeyer, Angela, 2025. "Signals and stigmas from banking interventions: Lessons from the Bank Holiday of 1933," Journal of Financial Economics, Elsevier, vol. 163(C).
    2. Luiz Paulo Lopes Fávero & Michel Ferreira Cardia Haddad & Rafael Freitas Souza, 2022. "Crises and the development of economic institutions: a narrow replication of Rajan and Ramcharan (2016) through a multilevel econometric approach," SN Business & Economics, Springer, vol. 2(6), pages 1-10, June.
    3. Allen N. Berger & John Sedunov, 2024. "The Life Cycle of Systemic Risk and Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(8), pages 1923-1961, December.
    4. Jon Cohen & Kinda Hachem & Gary Richardson, 2021. "Relationship Lending and the Great Depression," The Review of Economics and Statistics, MIT Press, vol. 103(3), pages 505-520, July.

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    More about this item

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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