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Department ofEconomics

Papers

Network Contagion and Interbank Amplification during the Great Depression

Kris J. Mitcherner and Gary Richardson

Journal of Political Economy 127 (2), April 2019, pp. 465–507

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Abstract:

Interbank networks amplified the contraction in lending during the Great Depression. Banking panics induced banks in the hinterland to withdraw interbank deposits from Federal Reserve member banks located in reserve and central reserve cities. These correspondent banks responded by curtailing lending to businesses. Between the peak in the summer of 1929 and the banking holiday in the winter of 1933, interbank amplification reduced aggregate lending in the U.S. economy by an estimated 15 percent.

LSB Research, Econ, 2019, Kris Mitcherner