Shadowy Banks and Financial Contagion during the Great Depression: A Retrospective on Friedman and Schwartz

Kris James Mitchener and Gary Richardson

American Economic Review, 2013, vol. 103, issue 3, 73-78

Abstract: This essay assesses whether network linkages within the banking system amplified the real effects of bank failures during the Great Contraction. In 1929, nearly all interbank deposits held by Federal Reserve member banks belonged to "shadowy" nonmember banks which were outside the regulatory reach of federal regulators. Regional banking panics in the early 1930s drained these interbank deposits from central reserve city banks. Money-center banks in Chicago and New York responded to volatile and declining interbank deposits by changing their asset composition. They reduced their lending to businesses and individuals, and increased their holdings of cash and government bonds.

JEL-codes: B31 E32 E44 E52 G21 N12 N22 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.3.73
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Citations: View citations in EconPapers (13)

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