Bank Distress during the Great Depression: The Illiquidity-Insolvency Debate Revisited

Gary Richardson

No 12717, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E0 E42 E44 E65 N01 N12 N2 (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-ban, nep-his and nep-mac
Note: DAE ME
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Published as Richardson, Gary. “Bank Distress during the Great Depression: The Illiquidity-Insolvency Debate Revisited." Explorations in Economic History 44, 4 (October 2007):586-607.

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