Article2018

Network Contagion and Interbank Amplification during the Great Depression

97 citations0/0 files storedJournal of Political Economy

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Banking stability, regulation, efficiency Monetary Policy and Economic Impact Historical Economic and Social Studies

Abstract

Interbank networks amplified the contraction in lending during the Great Depression. Panics induced banks in the hinterland to withdraw interbank deposits from Federal Reserve member banks located in reserve and central reserve cities. These correspondent banks responded by curtailing lending to businesses. Between the peak in the summer of 1929 and the banking holiday in the winter of 1933, interbank amplification reduced aggregate commercial bank lending by an estimated 15 percent.

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References

1983Bank Runs, Deposit Insurance, and Liquidity 2008Bootstrap-Based Improvements for Inference with Clustered Errors 2000Financial Contagion 1933The Debt-Deflation Theory of Great Depressions 2011Securitized banking and the run on repo 2000Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank 2013Systemic Banking Crises Database 2013When Credit Bites Back

Cited by

2019Shock Transmission Through Cross-Border Bank Lending: Credit and Real Effects 2020Interbank connections, contagion and bank distress in the Great Depression✰2023Nobel Lecture: Banking, Credit, and Economic Fluctuations 2020Flight‐to‐safety and the credit crunch: a new history of the banking crises in France during the Great Depression†

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