Skip to main content Accessibility help
×
Home
Hostname: page-component-55597f9d44-pgkvd Total loading time: 0.282 Render date: 2022-08-18T12:13:19.353Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "useRatesEcommerce": false, "useNewApi": true } hasContentIssue true

Bank Supervision, Regulation, and Instability During the Great Depression

Published online by Cambridge University Press:  15 March 2005

KRIS JAMES MITCHENER
Affiliation:
Assistant Professor, Department of Economics, Santa Clara University, 500 El Camino Real, Santa Clara, CA 95053-0385; and Faculty Research Fellow, NBER. E-mail: kmitchener@scu.edu.

Abstract

Even after controlling for local economic conditions, differences in supervision and regulation help explain the large variation in state bank suspension rates across U.S. counties during the Great Depression. More stringent capital requirements lowered suspension rates whereas laws prohibiting branch banking and imposing high reserve requirements raised them. States whose bank supervisors could liquidate banks minimized contagion and credit-channel dislocations and experienced lower suspension rates. Those that gave their supervisors sole authority to issue bank charters and granted their supervisors long terms strengthened the incentives for bank lobbyists to influence supervisory decisions and consequently experienced higher rates of suspension.

Type
ARTICLES
Copyright
© 2005 The Economic History Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

American Bankers Association. 1929 Survey on State Bank Supervision. Washington, DC: ABA, State Bank Division,
American Bankers Association. 1934 Survey on State Bank Supervision. Washington, DC: ABA, State Bank Division,
American Bankers Association. 1935 The Bank Chartering History and Policies of the United States. New York: Economic Policy Commission, ABA,
Anari Ali, Joseph Mason, and James Kolari. 2000The Speed of Bank Liquidation and the Propagation of the U.S. Great Depression.” In Bank Structure and Competition Conference Proceedings. Chicago: Federal Reserve Bank of Chicago,
Barth James R., Gerard Caprio, and Ross Levine. 2001The Regulation and Supervision of Banks around the World: A New Database.” In Brookings-Wharton Papers on Financial Services, edited by Robert E. Litan and Richard Herring, 183240. Washington, DC: Brookings Institution Press,
Barth James R., Gerard Caprio, and Ross Levine. 2002Bank Regulation and Supervision: What Works Best?NBER Working Paper 9223,
Benston George J., and George C. Kaufman. 1994. “The Intellectual History of the Federal Deposit Insurance Corporation Improvement Act of 1991.” In Reforming Financial Institutions and Markets in the United States: Towards Rebuilding a Safe and More Efficient System, edited by George G. Kaufman, 117. Boston: Kluwer Academic Publishers,
Bernanke Ben S., Mark Gertler, and Simon Gilchrist. 1996The Flight to Quality and the Financial Accelerator.” Review of Economics and Statistics 78, no. 1: 115Google Scholar
Bernanke Ben, and Harold James. 1991. “The Gold Standard, Deflation, and Financial Crises in the Great Depression: An International Comparison.” In Financial Markets and Financial Crises, edited by R. Glenn Hubbard, 3368. Chicago: University of Chicago Press,
Besanko David, and George Kanatas. 1993Credit Market Equilibrium with Bank Monitoring and Moral Hazard.” Review of Financial Studies 6, no. 1: 21332Google Scholar
Blum Jurg. 1999Do Capital Adequacy Requirements Reduce Risks in Banking?Journal of Banking and Finance 23, no. 5 75571Google Scholar
Board of Governors, Federal Reserve System. 1959 All-Bank Statistics: United States, 1896–1955. Washington, DC: Federal Reserve System,
Board of Governors, Federal Reserve System. Bulletin. Washington, DC: Federal Reserve System, various years.
Boot Arnoud W., and Stuart Greenbaum. 1993. “Bank Regulation, Reputation, and Rents Theory and Policy Implications.” In Capital Markets and Financial Intermediation, edited by C. Mayer and Xavier Vives, 26285. Cambridge: Cambridge University Press,
Calomiris Charles W., and Joseph R. Mason. 2003Fundamentals, Banking Distress, and Panics during the Depression.” American Economic Review 93, no. 5 161547Google Scholar
Calomiris Charles W., and Joseph R. Mason. 2002Causes of U.S. Banking Distress during the Depression.” NBER Working Paper 7919, September
Calomiris Charles, and Carlos Ramirez. 1999The Political Economy of Bank Entry Restrictions: Theory and Evidence from the U.S. in the 1920s.” Columbia University Working Paper, March
Caprio Gerard, and Daniela Klingebiel. 1996Bank Insolvency: Bad Luck, Bad Policy, or Bad Banking?” In Annual World Bank Conference on Development Economics. Washington, DC: World Bank,
Carlson Mark. 2004Are Branch Banks Better Survivors? Evidence from the Depression Era.” Economic Inquiry 42, no. 1 11126Google Scholar
Chapman John M., and Ray B. Westerfield. 1942 Branch Banking: Its Historical and Theoretical Position in America and Abroad. New York: Harper and Brothers,
Cothren Richard D., and Roger N. Waud. 1994On the Optimality of Reserve Requirements.” Journal of Money, Credit, and Banking 26, no. 4 82738Google Scholar
Demirguc-Kunt Asli, and Enrica Detragiache. 2002Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation.” Journal of Monetary Economics 49, no. 7 1373406Google Scholar
Dewatripont Mathias, and Jean Tirole. 1994 The Prudential Regulation of Banks. Cambridge, MA: MIT Press,
Ding W., I. Domaç, and G. Ferri. 1998Is There a Credit Crunch in East Asia?” World Bank, Policy Research Working Paper, No. 1959,
Djankov Simeon, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer. 2002The Regulation of Entry.” Quarterly Journal of Economics 117, no. 1 137Google Scholar
Economides Nicholas, R. Glenn Hubbard, and Darius Palia. 1996The Political Economy of Branching Restrictions and Deposit Insurance: A Model of Monopolistic Competition among Small and Large Banks.” Journal of Law and Economics 39, no. 2 667704Google Scholar
Federal Deposit Insurance Corporation. 1960Federal Deposit Insurance Corporation Data on Banks in the United States, 1920–1936.” [Computer file]. ICPSR ed. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [producer and distributor],
Ferri Giovanni, and Tae Soo Kang. 1999The Credit Channel at Work: Lessons from the Republic of Korea's Financial Crisis.” World Bank, Policy Research Working Paper, No. 2190,
Folkerts-Landau David, and Carl-Johan Lindgren. 1998 Toward a Framework for Financial Stability. Washington, DC: International Monetary Fund,
Freixas Xavier, and Rochet Jean-Charles 1997 Microeconomics of Banking. Cambridge: MIT Press,
Friedman Milton, and Anna J. Schwartz. 1963 A Monetary History of the United States, 1867–1960. Princeton, NJ: Princeton University Press,
Fry Maxwell J. 1995 Money, Interest, and Banking in Economic Development. Baltimore: Johns Hopkins University Press,
Gambs Carl M. 1977Bank Failures: An Historical Perspective.” Monthly Review, Federal Reserve Bank of Kansas City 62, June 1020Google Scholar
Goldstein Morris. 1996 The Case for an International Banking Standard Washington, DC: Institute for International Economics,
Grossman Richard S. 1994The Shoe That Didn't Drop: Explaining Banking Stability During the Great Depression.” This Journal 54, no. 3 65482Google Scholar
Grossman Richard S. 2001Double Liability and Bank Risk Taking.” Journal of Money, Credit, and Banking 33, no. 2 14359Google Scholar
Gruchy Allan. 1937 Supervision and Control of Virginia State Banks. Charlottesville, VA: University of Virginia,
Herring Richard, and Robert C. Litan. 1995 Financial Regulation in the Global Economy Washington, DC: Brookings Institution,
Hunter William C., James A. Verbrugge, and David A. Whidbee. 1996Risk Taking and Failure in De Novo Savings and Loans in the 1980s.” Journal of Financial Services Research 10, no. 3 23571Google Scholar
Kahane Yehuda. 1977Capital Adequacy and the Regulation of Financial Intermediaries.” Journal of Banking and Finance 1 20718Google Scholar
Kim D., and A. M. Santomero. 1988Risk in Banking and Capital Regulation.” Journal of Finance 35, no. 5 121933Google Scholar
Kliesen Kevin L., and Gilbert R. Alton. 1996Are Some Agricultural Banks Too Agricultural?” Federal Reserve Bank of St. Louis Review 78, no. 1 2335Google Scholar
Laderman Elizabeth S., Ronald H. Schmidt, and Gary C. Zimmerman. “Location, Branching, and Bank Portfolio Diversification: The Case of Agricultural Lending.” Federal Reserve Bank of San Francisco Economic Review (Winter 1991): 2438
Laffont Jean-Jacques, and Jean Tirole. 1991The Politics of Government Decision-Making: A Theory of Regulatory Capture.” Quarterly Journal of Economics 106, no. 4 1089127Google Scholar
Lauch Louis H., and Neil B. Murphy. 1970A Test of the Impact of Branching on Deposit Variability.” Journal of Financial and Quantitative Analysis 5 (September) 32327Google Scholar
Liang Nellie, and Stephen A. Rhoades. 1988Geographic Diversification and Risk in Banking.” Journal of Economics and Business 40, no. 4 27184Google Scholar
Martimont David. 1999The Life Cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs.” Review of Economic Studies 66, no. 4 92947Google Scholar
Mason Joseph. 1996 The Determinants and Effects of Reconstruction Finance Corporation Assistance to Banks During the Great Depression. Ph.D. Dissertation, University of Illinois,
Meyer Andrew P., and Timothy J. Yeager. 2001Are Small Rural Banks Vulnerable to Local Economic Downturns?” Federal Reserve Bank of St. Louis Review 83, no. 2 2538Google Scholar
Mishkin Frederic S. 2001. “Prudential Supervision: Why Is It Important and What Are the Issues?” In Prudential Supervision: What Works and What Doesn't, edited by Frederic S. Mishkin, 129. Chicago: University of Chicago Press,
Mitchener Kris James. 2001 Supervision, Regulation, and Financial Instability: The Political Economy of Banking during the Great Depression. Ph.D. Dissertation, University of California, Berkeley,
National Industrial Conference Board. 1932 The Banking Situation in the United States. New York: NICB,
Neal Linwood O. 1942 The History and Development of State Bank Supervision in Oklahoma. New Brunswick, NJ: Rutgers University,
Neely Michelle Clark, and David C. Wheelock. 1997Why Does Bank Performance Vary Across States?” Federal Reserve Bank of St. Louis Review 79, no. 2 2740Google Scholar
Peltzman Sam. 1976Toward a More General Theory of Regulation.” Journal of Law and Economics 19, no. 2 21140Google Scholar
Polk's Bankers Encyclopedia Co. 1929 Polk's Bankers Encyclopedia. Detroit, MI: Polk's Bankers Encyclopedia Co, March
Ramirez Carlos D. 2003Did Branch Banking Restrictions Increase Bank Failures? Evidence from Virginia and West Virginia in the Late 1920s.” Journal of Economics and Business 55, no. 4 33152Google Scholar
Rand McNally. Rand McNally International Bankers Directory. Chicago: Rand McNally & Co, various years
Stauffer Robert F. 1981The Bank Failures of 1930–1931.” Journal of Money, Credit, and Banking 13, no. 1 10913Google Scholar
Stigler George J. 1971The Theory of Economic Regulation.” Bell Journal of Economics 2 321Google Scholar
Stiroh Kevin J., and Philip E. Strahan. 2003Competitive Dynamics of Deregulation: Evidence from U.S. Banking.” Journal of Money, Credit, and Banking 35, no. 5 80128Google Scholar
Study Commission for Indiana Financial Institutions. 1932 Report. Indianapolis, IN: Seventy-Seventh General Assembly,
Temin Peter. 1976 Did Monetary Forces Cause the Great Depression? New York: W.W. Norton,
Thies Clifford, and Daniel Gerlowski. 1993Bank Capital and Bank Failure, 1921–1932: Testing the White Hypothesis.” This Journal 53, no. 4 90815Google Scholar
Tippetts Charles S. 1929 State Banks and the Federal Reserve System. New York: D. Van Nostrand Company,
U.S. Department of Commerce, Bureau of Economic Analysis. 1995 State Personal Income: 1929–33. Washington, DC: GPO,
U.S. Department of Commerce, Bureau of the Census 1920 Census of the Population. Washington: U.S. Department of Commerce, and 1930. [Computer file]. ICPSR ed. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [producer and distributor], 1970
Vickers Raymond B 1994 Panic in Paradise: Florida's Banking Crash of 1926. Tuscaloosa: University of Alabama Press,
Wacht Richard F. 1968Branch Banking and Risk.” Journal of Financial and Quantitative Anaylsis 3, March 97107Google Scholar
Wheelock David C. 1992Regulation and Bank Failures: New Evidence from the Agricultural Collapse of the 1920s.” This Journal 52, no. 4 80625Google Scholar
Wheelock David C. 1995Regulation, Market Structure, and the Bank Failures of the Great Depression.” Federal Reserve Bank of St. Louis Review 77, no. 2 2738Google Scholar
White Eugene N. 1983 The Regulation and Reform of the American Banking System, 1900–1929. Princeton, NJ: Princeton University Press,
White Eugene N. 1984A Reinterpretation of the Banking Crisis of 1930.” This Journal 44, no. 1 11938Google Scholar
Wicker Elmus. 1980A Reconsideration of the Causes of the Banking Panic of 1930.” This Journal 40, no. 3 57183Google Scholar
Wicker Elmus. 1996 The Banking Panics of the Great Depression. Cambridge: Cambridge University Press,
Willit Virgil. 1930 Chain, Group and Branch Banking. New York: H.W. Wilson Company,
44
Cited by

Save article to Kindle

To save this article to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Bank Supervision, Regulation, and Instability During the Great Depression
Available formats
×

Save article to Dropbox

To save this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you used this feature, you will be asked to authorise Cambridge Core to connect with your Dropbox account. Find out more about saving content to Dropbox.

Bank Supervision, Regulation, and Instability During the Great Depression
Available formats
×

Save article to Google Drive

To save this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you used this feature, you will be asked to authorise Cambridge Core to connect with your Google Drive account. Find out more about saving content to Google Drive.

Bank Supervision, Regulation, and Instability During the Great Depression
Available formats
×
×

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *