Working Paper: NBER ID: w22074
Authors: Kris James Mitchener; Gary Richardson
Abstract: Interbank networks amplified the contraction in lending during the Great Depression. Banking panics induced banks in the hinterland to withdraw interbank deposits from Federal Reserve member banks located in reserve and central reserve cities. These correspondent banks responded by curtailing lending to businesses. Between the peak in the summer of 1929 and the banking holiday in the winter of 1933, interbank amplification reduced aggregate lending in the U.S. economy by an estimated 15 percent.
Keywords: interbank networks; Great Depression; banking panics; lending contraction; systemic risk
JEL Codes: E44; G01; G21; L14; N22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| banking panics (F65) | interbank deposit flows (F33) |
| interbank deposit flows (F33) | lending to businesses (G21) |
| banking panics (F65) | withdrawals of interbank deposits (G21) |
| withdrawals of interbank deposits (G21) | reduced lending (G21) |
| interbank amplification (F65) | aggregate lending (G21) |
| bank runs (E44) | flows of interbank deposits (E50) |
| banking distress (F65) | lending contraction (E51) |