IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/7919.html
   My bibliography  Save this paper

Causes of U.S. Bank Distress During the Depression

Author

Listed:
  • Charles W. Calomiris
  • Joseph R. Mason

Abstract

This paper provides the first comprehensive econometric analysis of the causes of bank distress during the Depression. We assemble bank-level data for virtually all Fed member banks, and combine those data with county-level, state-level, and national-level economic characteristics to capture cross-sectional and inter-temporal variation in the determinants of bank failure. We construct a model of bank survival duration using these fundamental determinants of bank failure as predictors, and investigate the adequacy of fundamentals for explaining bank failures during alleged episodes of nationwide or regional banking panics. We find that fundamentals explain most of the incidence of bank failure, and argue that contagion' or liquidity crises' were a relatively unimportant influence on bank failure risk prior to 1933. We construct upper-bound measures of the importance of contagion or liquidity crises. At the national level, we find that the first two banking crises identified by Friedman and Schwartz in 1930 and 1931 are not associated with positive unexplained residual failure risk, or with changes in the importance of liquidity measures for forecasting bank failures. The third banking crisis they identify is a more ambiguous case, but even if one views it as a bona fide national liquidity crisis, the size of the contagion effect could not have been very large. The last banking crisis they identify at the beginning of 1933 is associated with important, unexplained increases in bank failure risk. We also investigate the potential role of regional or local contagion and illiquidity crises for promoting bank failure and find some evidence in support of such effects, but these are of small importance in the aggregate. We also investigate the causes of bank distress measured as deposit contraction, using county-level measures of deposits of all commercial banks, and reach similar conclusions about the importance of fundamentals in determining deposit contraction.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:7919
    Note: DAE ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w7919.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-679, June.
    2. Wicker,Elmus, 1996. "The Banking Panics of the Great Depression," Cambridge Books, Cambridge University Press, number 9780521562614, April.
    3. Lucia, Joseph L., 1985. "The failure of the bank of United States: A reappraisal," Explorations in Economic History, Elsevier, vol. 22(4), pages 402-416, October.
    4. 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.
    5. Ramirez, Carlos D., 2003. "Did branch banking restrictions increase bank failures? Evidence from Virginia and West Virginia in the late 1920s," Journal of Economics and Business, Elsevier, vol. 55(4), pages 331-352.
    6. Imbens, G W, 1994. "Transition Models in a Non-stationary Environment," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 703-720, November.
    7. Esbitt, Milton, 1986. "Bank Portfolios and Bank Failures During the Great Depression: Chicago," The Journal of Economic History, Cambridge University Press, vol. 46(02), pages 455-462, June.
    8. Charles W. Calomiris & Joseph R. Mason, 2003. "Consequences of Bank Distress During the Great Depression," American Economic Review, American Economic Association, vol. 93(3), pages 937-947, June.
    9. Friedman, Milton & Schwartz, Anna J., 1986. "The failure of the bank of United States: A reappraisal : A reply," Explorations in Economic History, Elsevier, vol. 23(2), pages 199-204, April.
    10. Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, January.
    11. Joseph R. Mason, 1998. "American banks during the Great Depression: a new research agenda," Review, Federal Reserve Bank of St. Louis, issue May, pages 151-152.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • N2 - Economic History - - Financial Markets and Institutions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:7919. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: () or (Joanne Lustig). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.