Banking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock

Matthew Jaremski and David Wheelock

No 2017-36, Working Papers from Federal Reserve Bank of St. Louis

Abstract: How do banks respond to asset booms? This paper examines i) how U.S. banks responded to the World War I farmland boom; ii) the impact of regulation; and iii) how bank closures exacerbated the post-war bust. The boom encouraged new bank formation and balance sheet expansion (especially by new banks). Deposit insurance amplified the impact of rising crop prices on bank portfolios, while higher minimum capital requirements dampened the effects. Banks that responded most aggressively to the asset boom had a higher probability of closing in the bust, and counties with more bank closures experienced larger declines in land prices.

Keywords: Asset booms and busts; banks; bank lending; bank entry; bank closures; deposit insurance; regulation (search for similar items in EconPapers)
JEL-codes: E58 N21 N22 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2017-11-03
New Economics Papers: this item is included in nep-agr, nep-ban, nep-his, nep-ias and nep-mac
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Published in Journal of Money, Credit and Banking

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Related works:
Journal Article: Banking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock (2020)
Working Paper: Banking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2017-036

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DOI: 10.20955/wp.2017.036

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