Deflation, Silent Runs, and Bank Holidays, in the Great Contraction
This paper argues that the banking crises in the United States in the early 1930s were similar to the “twin crises” -- banking and balance of payments crises -- which have occurred in developing countries in recent years. The downturn that began in 1929 undermined banks that had made risky loans in the twenties. The deflation that followed further weakened the banks, especially in rural areas where deflation in prices and incomes was the greatest. Depositors in those areas began transferring their deposits to banks they regarded as safer, or purchasing bonds. These “silent runs,” essentially a capital flight, have been neglected in many accounts of the banking crises. But evidence from the Gold Settlement Fund (which recorded interregional gold movements) and from regional deposit movements suggests that silent runs were important, especially in the crucial year 1930. When the crisis worsened, state and local authorities began declaring “bank holidays,” which limited the right of depositors to make withdrawals, a movement that culminated in the declaration of a national bank holiday by President Roosevelt. In retrospect the policy advocated periodically by the Federal Reserve Bank of New York, the purchase of government bonds on the open market, was right for the country as a whole. But a majority of the Governors of the other Federal Reserve Banks were opposed. Some opponents of open market purchases thought they would benefit the stock market without contributing significantly to the revival of business in the interior. The result was a minimalist policy that led to an unprecedented financial and economic collapse.
|Date of creation:||05 Feb 2003|
|Date of revision:|
|Contact details of provider:|| Postal: New Jersey Hall - 75 Hamilton Street, New Brunswick, NJ 08901-1248|
Phone: (732) 932-7363
Fax: (732) 932-7416
Web page: http://economics.rutgers.edu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Reinhart, Carmen & Kaminsky, Graciela, 2000.
"Las crisis gemelas: las causas de los problemas bancarios y de balanza de pagos
[The twin crises: Te causes of banking and balance of payments problems]," MPRA Paper 13842, University Library of Munich, Germany.
- Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
- Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
- Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
- Jong-Il Kim & Lawrence J. Lau, 1996. "The sources of Asian Pacific economic growth," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 448-54, April.
- 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.).
- 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.
- Penelope Hartland, 1949. "Interregional Payments Compared with International Payments," The Quarterly Journal of Economics, Oxford University Press, vol. 63(3), pages 392-407.
- Karl Brunner & Allan H. Meltzer, 1968. "What Did We Learn from the Monetary Experience of the United States in the Great Depression?," Canadian Journal of Economics, Canadian Economics Association, vol. 1(2), pages 334-348, May.
- Brandt, Loren & Sargent, Thomas J., 1989. "Interpreting new evidence about China and U.S. silver purchases," Journal of Monetary Economics, Elsevier, vol. 23(1), pages 31-51, January.
- Barry Eichengreen, 2002. "Still Fettered After All These Years," NBER Working Papers 9276, National Bureau of Economic Research, Inc.
- Miller, Victoria, 1998. "The Double Drain with a Cross-Border Twist: More on the Relationship between Banking and Currency Crises," American Economic Review, American Economic Association, vol. 88(2), pages 439-43, May.
- Wallis, John Joseph, 1987. "Employment, Politics, and Economic Recovery during the Great Depression," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 516-20, August.
- Garlock, Fred L., 1941. "Country Banking in Wisconsin During the Depression," Technical Bulletins 169025, United States Department of Agriculture, Economic Research Service.
- Rendigs Fels, 1950. "Interregional Payments: A Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 64(3), pages 488-489.
- Wicker,Elmus, 1996. "The Banking Panics of the Great Depression," Cambridge Books, Cambridge University Press, number 9780521562614, 1.
- Rawski, Thomas G, 1993. "Milton Friedman, Silver, and China," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 755-58, August.
- Charles Calomiris & David Wheelock, 1998.
"Was the Great Depression a Watershed for American Monetary Policy?,"
in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 23-66
National Bureau of Economic Research, Inc.
- Charles W. Calomiris & David C. Wheelock, 1997. "Was the Great Depression a Watershed for American Monetary Policy?," NBER Working Papers 5963, National Bureau of Economic Research, Inc.
- Smiley, Gene, 1981. "Regional Variation in Bank Loan Rates in the Interwar Years," The Journal of Economic History, Cambridge University Press, vol. 41(04), pages 889-901, December.
When requesting a correction, please mention this item's handle: RePEc:rut:rutres:200302. 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: ()
If references are entirely missing, you can add them using this form.