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American Economic Review: Vol. 103 No. 3 (May 2013)

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

Article Citation

Mitchener, Kris James, and Gary Richardson. 2013. "Shadowy Banks and Financial Contagion during the Great Depression: A Retrospective on Friedman and Schwartz." American Economic Review, 103(3): 73-78.

DOI: 10.1257/aer.103.3.73

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.

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Authors

Mitchener, Kris James (U Warwick)
Richardson, Gary (U CA, Irvine)

JEL Classifications

B31: History of Economic Thought: Individuals
E32: Business Fluctuations; Cycles
E44: Financial Markets and the Macroeconomy
E52: Monetary Policy
G21: Banks; Depository Institutions; Micro Finance Institutions; Mortgages
N12: Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: 1913-
N22: Economic History: Financial Markets and Institutions: U.S.; Canada: 1913-


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