Fundamentals, Panics, and Bank Distress During the Depression

2003/11/01 by Charles W Calomiris, Charles W. Calomiris, Joseph R Mason +1 · 514 citations
Economics, Econometrics and Finance · Psychology · #Anxiety #Bank failure #Bank run #Banking stability, regulation, efficiency #Depression (economics) #Distress #Economic theories and models #Economics #Financial system #Global Financial Crisis and Policies #Great Depression #Macroeconomics #Market liquidity #Monetary economics #Panic #Political science #Psychiatry #Psychology

paper · doi:10.1257/000282803322655473

published in American Economic Review 93(5), 1615-1647 (American Economic Association)

openalex publication_date 2003/11/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/31

Abstract

We assemble bank-level and other data for Fed member banks to model determinants of bank failure. Fundamentals explain bank failure risk well. The first two Friedman-Schwartz crises are not associated with positive unexplained residual failure risk, or increased importance of bank illiquidity for forecasting failure. The third Friedman-Schwartz crisis is more ambiguous, but increased residual failure risk is small in the aggregate. The final crisis (early 1933) saw a large unexplained increase in bank failure risk. Local contagion and illiquidity may have played a role in pre-1933 bank failures, even though those effects were not large in their aggregate impact.

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