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What caused Chicago bank failures in the Great Depression? A look at the 1920s

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  • Postel-Vinay, Natacha

Abstract

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.

Suggested Citation

  • Postel-Vinay, Natacha, 2016. "What caused Chicago bank failures in the Great Depression? A look at the 1920s," LSE Research Online Documents on Economics 88844, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:88844
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    File URL: http://eprints.lse.ac.uk/88844/
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    References listed on IDEAS

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    Cited by:

    1. repec:bla:ehsrev:v:72:y:2019:i:1:p:260-285 is not listed on IDEAS
    2. Macher, Flora, 2018. "The Austrian banking crisis of 1931: one bad apple spoils the whole bunch," Economic History Working Papers 87151, London School of Economics and Political Science, Department of Economic History.
    3. Grodecka, Anna & Kenny, Seán & Ögren, Anders, 2018. "Predictors of Bank Distress:The 1907 Crisis in Sweden," Working Paper Series 358, Sveriges Riksbank (Central Bank of Sweden).
    4. Olivier Accominotti, 2019. "International banking and transmission of the 1931 financial crisis," Economic History Review, Economic History Society, vol. 72(1), pages 260-285, February.

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    • N0 - Economic History - - General

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