Working Paper

Government policy and banking instability: \"overbanking\" in the 1920s

Abstract: Excess capacity, or ?overbanking,? was cited by contemporaries as leading cause of bank failure during the 1920s. Many states that had high numbers of banks per capita in 1920 had high bank failure rates subsequently. This article finds that the number of banks per capita was highest in states that provided deposit insurance, set low minimum capital requirements, and restricted branching. Banks per capita declined the most over the 1920s in states where branching expanded, and in those suffering high failure rates because of falling incomes or instability caused by deposit insurance. Deposit insurance and the relative dominance of agriculture also explain the composition of state banking systems between state and federally chartered institutions.

Keywords: Bank failures; Deposit insurance;

Status: Published in Journal of Economic History, v. 53, no. 4, pp. pp. 857-879 (December 1993) Title:"Government Policy and Banking Market Structure in the 1920s"

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 1992

Number: 1992-007