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Are branch banks better survivors? Evidence from the Depression era

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  • Mark A. Carlson

Abstract

It is widely argued in the literature on the Great Depression that the prevalence of unit banks aggravated the problem of financial instability that afflicted the country. This paper tests the theory that more widespread branch banking would have reduced financial turbulence in the United States by examining the survival of individual branch and unit banks. Results indicate that instead of being more likely to survive, branch banks were more likely to fail. Further investigation suggests that this higher failure rate occurred because branch banks systematically held riskier portfolios than unit banks.

Suggested Citation

  • Mark A. Carlson, 2001. "Are branch banks better survivors? Evidence from the Depression era," Finance and Economics Discussion Series 2001-51, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2001-51
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    References listed on IDEAS

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    1. Rebecca Demsetz & Philip E. Strahan, 1995. "Historical patterns and recent changes in the relationship between bank holding company size and risk," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 13-26.
    2. Wicker,Elmus, 1996. "The Banking Panics of the Great Depression," Cambridge Books, Cambridge University Press, number 9780521562614.
    3. Coe, Patrick J, 2002. "Financial Crisis and the Great Depression: A Regime Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 76-93, February.
    4. Miron, Jeffrey A, 1986. "Financial Panics, the Seasonality of the Nominal Interest Rate, and theFounding of the Fed," American Economic Review, American Economic Association, vol. 76(1), pages 125-140, March.
    5. Joseph P. Hughes & William W. Lang & Loretta J. Mester & Choon-Geol Moon, 1996. "Efficient banking under interstate branching," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 1045-1075.
    6. Grossman, Richard S., 1994. "The Shoe That Didn't Drop: Explaining Banking Stability During the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 54(03), pages 654-682, September.
    7. David C. Wheelock, 1995. "Regulation, market structure and the bank failures of the Great Depression," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 27-38.
    8. Charles W. Calomiris & Joseph R. Mason, 2000. "Causes of U.S. Bank Distress During the Depression," NBER Working Papers 7919, National Bureau of Economic Research, Inc.
    9. John Philip Wernette, 1932. "Branch Banking in California and Bank Failures," The Quarterly Journal of Economics, Oxford University Press, vol. 46(2), pages 362-375.
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    Citations

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    Cited by:

    1. Mark Carlson & Kris James Mitchener, 2009. "Branch Banking as a Device for Discipline: Competition and Bank Survivorship during the Great Depression," Journal of Political Economy, University of Chicago Press, vol. 117(2), pages 165-210, April.
    2. Carlson, Mark & Mitchener, Kris James, 2006. "Branch Banking, Bank Competition, and Financial Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1293-1328, August.
    3. Mark Billings & Forrest Capie, 2011. "Financial crisis, contagion, and the British banking system between the world wars," Business History, Taylor & Francis Journals, vol. 53(2), pages 193-215.
    4. Schnabel, Isabel, 2002. "The Great Banks` Depression - Deposit Withdrawals in the German Crisis of 1931," Sonderforschungsbereich 504 Publications 03-11, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    5. Richardson Gary & Van Horn Patrick, 2011. "Fetters of Debt, Deposit, or Gold during the Great Depression? The International Propagation of the Banking Crisis of 1931," Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook, De Gruyter, vol. 52(2), pages 29-54, December.
    6. Colvin, Christopher L. & de Jong, Abe & Fliers, Philip T., 2015. "Predicting the past: Understanding the causes of bank distress in the Netherlands in the 1920s," Explorations in Economic History, Elsevier, vol. 55(C), pages 97-121.
    7. Victor Aguirregabiria & Robert Clark & Hui Wang, 2016. "Diversification of geographic risk in retail bank networks: evidence from bank expansion after the Riegle-Neal Act," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 529-572, August.
    8. Kris James Mitchener, 2007. "Are Prudential Supervision and Regulation Pillars of Financial Stability? Evidence from the Great Depression," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 273-302.
    9. Hugh Rockoff, 2003. "Deflation, Silent Runs, and Bank Holidays, in the Great Contraction," NBER Working Papers 9522, National Bureau of Economic Research, Inc.
    10. Gary Richardson, 2006. "Bank Distress During the Great Contraction, 1929 to 1933, New Data from the Archives of the Board of Governors," NBER Working Papers 12590, National Bureau of Economic Research, Inc.
    11. Sarah Sanya & Simon Wolfe, 2011. "Can Banks in Emerging Economies Benefit from Revenue Diversification?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 40(1), pages 79-101, October.
    12. Isabel Schnabel, 2005. "The Role of Liquidity and Implicit Guarantees in the German Twin Crisis of 1931," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2005_5, Max Planck Institute for Research on Collective Goods.
    13. Charles W. Calomiris & Joseph R. Mason, 2003. "Fundamentals, Panics, and Bank Distress During the Depression," American Economic Review, American Economic Association, vol. 93(5), pages 1615-1647, December.
    14. Sissy, Aisha Mohammed & Amidu, Mohammed & Abor, Joshua Yindenaba, 2017. "The effects of revenue diversification and cross border banking on risk and return of banks in Africa," Research in International Business and Finance, Elsevier, vol. 40(C), pages 1-18.
    15. Kris James Mitchener, 2004. "Bank Supervision, Regulation, and Instability During the Great Depression," NBER Working Papers 10475, National Bureau of Economic Research, Inc.
    16. Kris James Mitchener, 2006. "Are Prudential Supervision and Regulation Pillars of Financial Stability? Evidence from the Great Depression," NBER Working Papers 12074, National Bureau of Economic Research, Inc.
    17. Mark A. 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.).
    18. Postel-Vinay, Natacha, 2011. "From a “normal recession” to the “Great Depression”: finding the turning point in Chicago bank portfolios, 1923-1933," Economic History Working Papers 35518, London School of Economics and Political Science, Department of Economic History.
    19. D'Avino, Carmela & Shabani, Mimoza, 2017. "A new approach to measuring universal banking," MPRA Paper 83166, University Library of Munich, Germany.
    20. Marc Flandreau & Gabriel Geisler Mesevage, 2014. "The Separation of Information and Lending and the Rise of Rating Agencies in the United States," IHEID Working Papers 11-2014, Economics Section, The Graduate Institute of International Studies.

    More about this item

    Keywords

    Branch banks ; Financial crises;

    JEL classification:

    • 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
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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