Working Paper: NBER ID: w12717
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 analyzes chronological patterns in aggregate series constructed from that data. The analysis demonstrates both illiquidity and insolvency were substantial sources of bank distress. Periods of heightened distress were correlated with periods of increased illiquidity. 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.
Keywords: bank distress; Great Depression; illiquidity; insolvency
JEL Codes: E0; E42; E44; E65; N01; N12; N2
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) |
| heavy withdrawals (G51) | bank suspensions (G21) |
| problematic assets (G32) | bank suspensions (G21) |
| contagion via correspondent networks (F65) | initial banking panics (N11) |
| asset value declines (G32) | bank failures (G21) |
| time (C41) | change in nature of banking crisis (F65) |