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Bank Supervision, Regulation, and Instability During the Great Depression

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  • Kris James Mitchener

Abstract

Even after controlling for local economic conditions, differences in state bank supervision and regulation contribute toward explaining the large variation in state bank suspension rates across U.S. counties during the Great Depression. More stringent capital requirements lowered suspension rates while laws prohibiting branch banking and imposing high reserve requirements had the opposite effect. States that endowed bank supervisors with the authority to 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 that granted their supervisors long terms strengthened the incentives for bank lobbyists to influence supervisory decisions and consequently experienced higher rates of suspension.

Suggested Citation

  • Kris James Mitchener, 2004. "Bank Supervision, Regulation, and Instability During the Great Depression," NBER Working Papers 10475, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:10475
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    References listed on IDEAS

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    Cited by:

    1. Gary Richardson, 2006. "Bank Distress during the Great Depression: The Illiquidity-Insolvency Debate Revisited," NBER Working Papers 12717, National Bureau of Economic Research, Inc.
    2. Carlson, Mark & Mitchener, Kris James, 2006. "Branch Banking, Bank Competition, and Financial Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1293-1328, August.
    3. Rösl, Gerhard & Seitz, Franz, 2022. "On the stabilizing role of cash for societies," IMFS Working Paper Series 167, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    4. Gary Richardson, 2006. "Quarterly Data on the Categories and Causes of Bank Distress During the Great Depression," NBER Working Papers 12715, National Bureau of Economic Research, Inc.
    5. Ibrahim Alley, 2023. "BOFIA 2020 and financial system stability in Nigeria: Implications for stakeholders in the African largest economy," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(2), pages 184-205, June.
    6. Gary Richardson, 2006. "Bank Distress During the Great Contraction, 1929 to 1933, New Data from the Archives of the Board of Governors," NBER Working Papers 12590, National Bureau of Economic Research, Inc.

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    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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