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Liability structure and the flight to liquidity: Evidence from Swedish banks during the great depression

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  • Zhao, Liang
  • Ögren, Anders

Abstract

This paper investigates how bank liability regimes shaped liquidity responses during the Great Depression in Sweden. Using monthly balance sheet data (1929–1934), we find that unlimited liability banks increased liquid assets more aggressively in response to monetary tightening and crisis, reallocating away from securities. In contrast, limited liability banks exhibited weaker responses. Mechanism tests reveal higher risk tolerance and funding fragility among limited liability banks, suggesting that internal incentives and external constraints jointly explain institutional heterogeneity in crisis behavior.

Suggested Citation

  • Zhao, Liang & Ögren, Anders, 2026. "Liability structure and the flight to liquidity: Evidence from Swedish banks during the great depression," Finance Research Letters, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:finlet:v:87:y:2026:i:c:s1544612325022822
    DOI: 10.1016/j.frl.2025.109033
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