Abstract
A Recurring theme of American financial history before 1934 was crisis characterized by the failure of a few large financial institutions followed by runs on other institutions because of contagious fears regarding the solvency and liquidity of the financial system. The banking panics of 1931 and 1933 showed that the Federal Reserve System, inspired by the panic of 1907 and intended to be a lender of last resort, was not a solution. Furthermore, bank failures were frequent even in years free of financial crisis. Nearly a quarter of commercial banks failed during the agricultural depression of the 1920s. The median annual commercial bank failure rate between the Civil War and 1920 was one of every 250 banks, about 80 banks a year at the turn of the century. After the introduction of federal deposit insurance—administered by the Federal Deposit Insurance Corporation which also added another level of bank supervision—in 1934, the incidence of commercial bank failures fell dramatically despite the fact that vulnerable unit banking structures were retained in many states. About 50 banks a year (of 15,000 banks) failed between 1934 and 1942, but there were only 156 failures during the next thirty-two years. This improvement was largely attributed to federal deposit insurance, although unprecedented economic stability and nearly unbroken farm prosperity received some of the credit.
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© 1995 Springer Science+Business Media New York
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Cottrell, A.F., Lawlor, M.S., Wood, J.H. (1995). Introduction. In: Cottrell, A.F., Lawlor, M.S., Wood, J.H. (eds) The Causes and Costs of Depository Institution Failures. Innovations in Financial Markets and Institutions, vol 9. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-0663-4_1
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DOI: https://doi.org/10.1007/978-94-011-0663-4_1
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