Bank Distress during the Great Depression: The Illiquidity-Insolvency Debate Revisited

During the contraction from 1929 through 1933, the Federal Reserve System tracked changes in the status of all banks operating in the United States and determined the cause of each bank suspension. This essay analyzes chronological patterns in aggregate series constructed from that data. The analysis demonstrates both illiquidity and insolvency were substantial sources of bank distress. Periods of heightened distress were correlated with periods of increased illiquidity. Contagion via correspondent networks and bank runs propagated the initial banking panics. As the depression deepened and asset values declined, insolvency loomed as the principal threat to depository institutions.

Deposit Insurance and the Composition of Bank Suspensions in Developing Economies: Lessons from the State Deposit Insurance Experiments of the 1920S

Eight states established deposit insurance systems between 1908 and 1917. All abandoned the systems between 1921 and 1930. Scholars debate the costs and benefits of these policy experiments. New data drawn from the archives of the Federal Reserve Board of Governors demonstrate that deposit insurance influenced the composition of bank suspensions in these states. In typical years, suspensions due to runs fell. Suspensions due to mismanagement rose. During the penultimate year of each system, the bank failure rate rose to an unsustainable height and the system ceased operations.

An objective examination of consumer perception of nutrition information based on healthiness ratings

Objective. Previous research on nutrition labelling has mainly used subjective measures. This study examines the effectiveness of two types of nutrition label using two objective measures: eye movements and healthiness ratings. Design. Eye movements were recorded while participants made healthiness ratings for two types of nutrition label: standard and standard plus the Food Standards Agency’s ‘traffic light’ concept. Setting. University of Derby, UK. Subjects. 92 participants (mean age 31.5 years) were paid for their participation. None of the participants worked in the areas of food or nutrition. Results. For the standard nutrition label, participant eye movements lacked focus and their healthiness ratings lacked accuracy. The traffic light system helped to guide the attention of the consumer to the important nutrients and improved the accuracy of the healthiness ratings of nutrition labels. Conclusions. Consumer’s have a lack of knowledge regarding how to interpret nutrition information for standard labels. The traffic light concept helps to ameliorate this problem by indicating important nutrients to pay attention to

A Comment Concerning Deposit Insurance and Moral Hazard

Hooks and Robinson argue that moral hazard induced by deposit insurance induced banks to invest in riskier assets in Texas during the 1920s. Their regressions suggest this manifestation of moral hazard may explain a portion of the events that occurred during the 1920s, but some other phenomena, hitherto overlooked, must also be at work. Economic logic and evidence form the archives of the Board of Governors suggest that phenomenon is mismanagement and defalcation by corporate officers, which increases when insurance reduces depositors' incentives to monitor and react to the safety and soundness of banks.

Monetary Intervention Mitigated Banking Panics During the Great Depression: Quasi-Experimental Evidence from the Federal Reserve District Border in Mississippi, 1929 to 1933

The Federal Reserve Act of 1913 divided Mississippi between the 6th (Atlanta) and 8th (St. Louis) Federal Reserve Districts. Before and during the Great Depression, these districts' policies differed. The Atlanta Fed championed monetary activism and the extension of credit to troubled banks. The St. Louis Fed adhered to the doctrine of real bills and eschewed expansionary initiatives. Outcomes differed across districts. In the 6th District, banks failed at lower rates than in the 8th District, particularly during the banking panic in the fall of 1930. The pattern suggests that discount lending reduced failure rates during periods of panic. Historical evidence and statistical analysis corroborates this conclusion.

Does "skin in the game" reduce risk taking? Leverage, liability and the long-run consequences of new deal financial reforms

We examine how the Banking Acts of the 1933 and 1935 and related New Deal legislation influenced risk taking in the financial sector of the U.S. economy. Our analysis focuses on contingent liability of bank owners for losses incurred by their firms and how the elimination of this liability influenced leverage and lending by commercial banks. Using a new panel data set that compares balance sheets of state and national banks, we find contingent liability reduced risk taking, particularly when coupled with rules requiring banks to join the Federal Deposit Insurance Corporation. Leverage ratios are higher in states with limited liability for bank owners. Banks in states with contingent liability converted each dollar of capital into fewer loans, and thus could sustain larger loan losses (as a fraction of their portfolio) than banks in limited liability states. The New Deal replaced a regime of contingent liability with stricter balance sheet regulation and increased capital requirements, shifting the onus of risk management from banks to state and federal regulators. By separating investment banks from commercial banks, the Glass-Steagall Act left investment banks to manage their own leverage, a feature of financial regulation that, in part, depended on their partnership structur

Identifying the task variables that predict object assembly difficulty.

We investigated the physical attributes of an object that influence the difficulty of its assembly. Identifying attributes that contribute to assembly difficulty will provide a method for predicting assembly complexity

Fetters of Debt, Deposit, or Gold during the Great Depression? The International Propagation of the Banking Crisis of 1931

A banking crisis began in Austria in May 1931 and intensified in July, when runs struck banks throughout Germany. In September, the crisis compelled Britain to quit the gold standard. Newly discovered data shows that failure rates rose for banks in New York City, at the center of the United States money market, in July and August 1931, before Britain abandoned the gold standard and before financial outflows compelled the Federal Reserve to raise interest rates. Banks in New York City had large exposures to foreign deposits and German debt. This paper tests to see whether the foreign exposure of money center banks linked the financial crises on the two sides of the Atlantic.

Interpreting the Ionization Sequence in AGN Emission-Line Spectra

We investigate the physical cause of the great range in the ionization level seen in the spectra of narrow lined active galactic nuclei (AGN). Mean field independent component analysis identifies examples of individual SDSS galaxies whose spectra are not dominated by emission due to star formation (SF), which we designate as AGN. We assembled high S/N ratio composite spectra of a sequence of these AGN defined by the ionization level of their narrow-line regions (NLR), extending down to very low-ionization cases. We used a local optimally emitting cloud (LOC) model to fit emission-line ratios in this AGN sequence. These included the weak lines that can be measured only in the co-added spectra, providing consistency checks on strong line diagnostics. After integrating over a wide range of radii and densities our models indicate that the radial extent of the NLR is the major parameter in determining the position of high to moderate ionization AGN along our sequence, providing a physical interpretation for their systematic variation. Higher ionization AGN contain optimally emitting clouds that are more concentrated towards the central continuum source than in lower ionization AGN. Our LOC models indicate that for the objects that lie on our AGN sequence, the ionizing luminosity is anticorrelated with the NLR ionization level, and hence anticorrelated with the radial concentration and physical extent of the NLR. A possible interpretation that deserves further exploration is that the ionization sequence might be an age sequence where low ionization objects are older and have systematically cleared out their central regions by radiation pressure. We consider that our AGN sequence instead represents a mixing curve of SF and AGN spectra, but argue that while many galaxies do have this type of composite spectra, our AGN sequence appears to be a special set of objects with negligible SF excitation.Comment: 57 pages; 18 figures, accepted by MNRA