Why Do Banks Fail? Evidence from the 1920s
Open accessAbstract
This paper examines the causes of rural bank failures during the 1920s using a newly created state-level data series. By focusing on rural banks we are able to investigate the impacts of agricultural distress and government policies on the class of banks accounting for 80% of the failures in the decade. Failure rates were highest where farm acreage and land values had increased the most before 1920 because these regions suffered the worst agricultural distress subsequently. Agricultural distress caused more bank failures in states with deposit insurance systems, suggesting that insurance encouraged banks to increase risk as their net worth declined.
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State level banking data suggests that state deposit insurance induced rural banks to increase risk as their net worth declined.
“More generally, state level banking data suggests that state deposit insurance induced rural banks to increase risk as their net worth declined (Alston, Grove, and Wheelock, 1994).”
From Lessons from the Great American Real Estate Boom and Bust of the 1920s (2009) · cites this paper as Alston, Grove, and Wheelock, 1994
Most bank failures in the 1920s (79%) were in rural areas.
“All were very rural states, and that most bank failures in the 1920s (79 percent) were in rural areas (Alston, Grove and Wheelock, 1994).”
From Lessons from the Great American Real Estate Boom and Bust of the 1920s (2009) · cites this paper as Alston, Grove and Wheelock, 1994
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Lessons from the Great American Real Estate Boom and Bust of the 1920s
White, E. (2009) · National Bureau of Economic Research · doi:10.3386/w15573 · Cited by 111 · see citing works
- Authors
- Alston, L. J., Grove, W. A., & Wheelock, D. C.
- Affiliations
- National Bureau of Economic Research (US)
- Le Moyne College (US)
- Syracuse University (US)
- Venue
- Explorations in Economic History
- Publisher
- Elsevier BV
- Published
- 1994-10
- Volume
- 31
- Issue
- 4
- Pages
- 409-431
- ISSN
- 0014-4983 (ISSN-L)
- OpenAlex
- W2012128632
- Cited by
- 187
- References
- 0
- Citations by year
- 2026: 3 · 2025: 4 · 2024: 6 · 2023: 2 · 2022: 1 · 2021: 1 · 2020: 6 · 2019: 9 · 2018: 12 · 2017: 6 · 2016: 9 · 2015: 5 · 2014: 8 · 2013: 17 · 2012: 15
- FWCI
- 6.35
- Type
- journal article
- Language
- en
- Open access
- hybrid
- doi.org
- Licence
- Locations
- Explorations in Economic History (publishedVersion, cc-by-nc-nd)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Banking stability, regulation, efficiency
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Historical Economic and Social Studies
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Insolvency and Governance
- Keywords
- bank failures, rural banks, agricultural distress, 1920s, deposit insurance, farmland acreage, land value, bank risk-taking, state-level data, banking history
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