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Alternatives for distressed banks and the panics of the Great Depression


  • Mark A. Carlson


Several studies have explored whether the banking panics of the Great Depression caused some institutions to fail that might otherwise have survived. This paper adopts a different approach and investigates whether the panics resulted in the failure and liquidation of banks that might otherwise have been able to pursue a less disruptive resolution strategies such as merging with another institution or suspending operations and recapitalizing. Using data on individual state-chartered banks, I find that many of the banks that failed during the panics appear to have been at least as financially sound as banks that were able to use alternative resolution strategies. This result supports the idea that the disruptions caused by the banking panics may have exacerbated the economic downturn.

Suggested Citation

  • 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.).
  • Handle: RePEc:fip:fedgfe:2008-07

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    References listed on IDEAS

    1. Charles W. Calomiris & Gary Gorton, 1991. "The Origins of Banking Panics: Models, Facts, and Bank Regulation," NBER Chapters,in: Financial Markets and Financial Crises, pages 109-174 National Bureau of Economic Research, Inc.
    2. 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.
    3. Wicker,Elmus, 1996. "The Banking Panics of the Great Depression," Cambridge Books, Cambridge University Press, number 9780521562614, March.
    4. Mark Carlson, 2004. "Are Branch Banks Better Survivors? Evidence from the Depression Era," Economic Inquiry, Western Economic Association International, vol. 42(1), pages 111-126, January.
    5. Frederic S. Mishkin, 1991. "Asymmetric Information and Financial Crises: A Historical Perspective," NBER Chapters,in: Financial Markets and Financial Crises, pages 69-108 National Bureau of Economic Research, Inc.
    6. Franklin Allen & Douglas Gale, 2000. "Financial Contagion," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 1-33, February.
    7. Donaldson, R. Glen, 1992. "Costly liquidation, interbank trade, bank runs and panics," Journal of Financial Intermediation, Elsevier, vol. 2(1), pages 59-82, March.
    8. Douglas W. Diamond & Raghuram G. Rajan, 2005. "Liquidity Shortages and Banking Crises," Journal of Finance, American Finance Association, vol. 60(2), pages 615-647, April.
    9. 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.
    10. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
    11. Gary Richardson, 2006. "Bank Distress during the Great Depression: The Illiquidity-Insolvency Debate Revisited," NBER Working Papers 12717, National Bureau of Economic Research, Inc.
    12. Anari, Ali & Kolari, James & Mason, Joseph, 2005. "Bank Asset Liquidation and the Propagation of the U.S. Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 753-773, August.
    13. Mitchener, Kris James, 2005. "Bank Supervision, Regulation, and Instability During the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 65(01), pages 152-185, March.
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    Cited by:

    1. Michael D. Bordo & John Landon-Lane, 2010. "The Lessons from the Banking Panics in the United States in the 1930s for the Financial Crisis of 2007-2008," NBER Working Papers 16365, National Bureau of Economic Research, Inc.

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    Bank failures ; Banks and banking - United States;

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