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Deposit Insurance Altered the Composition of Bank Suspensions during the 1920s: Evidence from the Archives of the Board of Governors

Author

Listed:
  • Chung Ching-Yi

    (Central Bank of China, chingyic@uci.edu)

  • Richardson Gary

    (University of California, Irvine, garyr@uci.edu)

Abstract

Eight states established deposit insurance systems between 1908 and 1917. All abandoned the systems between 1921 and 1930. Scholars debate the costs and benefits of these policy experiments. New data drawn from the archives of the Federal Reserve Board of Governors demonstrate that deposit insurance influenced the composition of bank suspensions in these states. In typical years, suspensions due to runs fell. Suspensions due to mismanagement rose. During the penultimate year of each system, the bank failure rate rose to an unsustainable height and the system ceased operations.

Suggested Citation

  • Chung Ching-Yi & Richardson Gary, 2006. "Deposit Insurance Altered the Composition of Bank Suspensions during the 1920s: Evidence from the Archives of the Board of Governors," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-44, December.
    • Handle: RePEc:bpj:bejeap:v:contributions.5:y:2006:i:1:n:34
    DOI: 10.1515/1538-0645.1588
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    Cited by:

    1. Umlauft, Thomas, 2014. "The Paradoxical Genesis of Too-Big-To-Fail," MPRA Paper 99301, University Library of Munich, Germany.
    2. Carlos D. Ramirez & Philip A. Shively, 2012. "The Effect of Bank Failures on Economic Activity: Evidence from U.S. States in the Early 20th Century," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 433-455, March.
    3. Matthew Jaremski & David C. Wheelock, 2020. "Banking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(7), pages 1719-1754, October.
    4. Davison, Lee K. & Ramirez, Carlos D., 2014. "Local banking panics of the 1920s: Identification and determinants," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 164-177.
    5. Mitchener, Kris James & Richardson, Gary, 2013. "Does “skin in the game” reduce risk taking? Leverage, liability and the long-run consequences of new deal banking reforms," Explorations in Economic History, Elsevier, vol. 50(4), pages 508-525.
    6. Kupiec, Paul H. & Ramirez, Carlos D., 2013. "Bank failures and the cost of systemic risk: Evidence from 1900 to 1930," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 285-307.
    7. Haelim Anderson & Gary Richardson & Brian Yang, 2023. "Deposit Insurance and Depositor Monitoring: Quasi‐Experimental Evidence from the Creation of the Federal Deposit Insurance Corporation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(2-3), pages 441-464, March.
    8. Robert L. Hetzel & Gary Richardson, 2016. "Money, Banking, and Monetary Policy from the Formation of the Federal Reserve until Today," Working Paper 16-1, Federal Reserve Bank of Richmond.

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