Working Paper

Financial Failure and Depositor Quality: Evidence from Building and Loan Associations in California

Abstract: Flightiness, or depositor sensitivity to liquidity needs, can be an important determinant of financial distress. I leverage institutional differences that attract depositors with varying flightiness across building and loan associations in California during the Great Depression. A new type of plan, the Dayton plan, involved less restrictive savings plans and lower withdrawal penalties. Dayton plans in California were more likely to close during the Great Depression. Archival evidence on lending rates and returns supports the flightiness mechanism.

Keywords: Bank Failures; Banks, credit unions, and other financial institutions; Building and Loan; Great Depression;

JEL Classification: N22; G23; G21;

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2022-08-08

Number: 1354