Working Paper: NBER ID: w12590
Authors: Gary Richardson
Abstract: During the contraction from 1929 through 1933, the Federal Reserve System tracked changes in the status of all banks operating in the United States and determined the cause of each bank suspension. This essay introduces that hitherto dormant data and analyzes chronological patterns in aggregate series constructed from it. The analysis demonstrates both illiquidity and insolvency were substantial sources of bank distress. Contagion (via correspondent networks and bank runs) propagated the initial banking panics. As the depression deepened and asset values declined, insolvency loomed as the principal threat to depository institutions. These patterns corroborate some and question other conjectures concerning the causes and consequences of the financial crisis during the Great Contraction.
Keywords: bank distress; Great Depression; financial crisis; liquidity; insolvency
JEL Codes: E42; E5; N1; N12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| illiquidity (G33) | bank distress (G21) |
| insolvency (G33) | bank distress (G21) |
| frozen and devalued assets (G32) | bank suspensions (G21) |
| heavy withdrawals (G51) | bank suspensions (G21) |
| contagion through correspondent networks (F65) | banking panics (F65) |
| asset devaluation (F31) | bank suspensions (G21) |