Jonathan D. Rose

Credit availability and the collapse of the banking sector in the 1930s

This paper examines the mechanism through which banking sector distress affects the availability of credit using the experience of the United States during the Great Depression. We utilize previously neglected data from a 1934 survey conducted by the Federal Reserve System of both banks and Chambers of Commerce regarding the availability of credit, and examine which aspects of the banking system collapse affected credit availability as indicated by the survey. We find that bank failures had the most dominant impact, but there is also some evidence for the importance of funding constraints from deposit outflows and of protracted bank liquidation.

Can a Bank Run Be Stopped? Government Guarantees and the Run on Continental Illinois

This paper analyzes the run on Continental Illinois in 1984. We find that the run slowed but did not stop following an extraordinary government intervention, which included the guarantee of all liabilities of the bank and a commitment to provide ongoing liquidity support. Continentals outflows were driven by a broad set of US and foreign financial institutions. These were large, sophisticated creditors with holdings far in excess of the insurance limit. During the initial run, creditors with relatively liquid balance sheets nevertheless withdrew more than other creditors, likely reflecting low tolerance to hold illiquid assets. In addition, smaller and more-distant creditors were more likely to withdraw. In the second and more drawn out phase of the run, institutions with relative large exposures to Continental were more likely to withdraw, reflecting a general unwillingness to have an outsized exposure to a troubled institution even in the absence of credit risk. Finally, we show that the concentration of holdings of Continentals liabilities was a key dynamic in the run and was importantly linked to Continentals systemic importance.

Stigma and the Discount Window

One of the primary roles of central banks like the Federal Reserve is to provide liquidity to the financial system, particularly during periods of stress. The discount window is a critical tool for providing that liquidity. In this note, we discuss several topics related to stigma in depth and describe how concerns about stigma have influenced changes in Federal Reserve discount window policies.

The Resolution of a Systemically Important Insurance Company During the Great Depression

This paper explores the economic issues related to systemically important insurance companies, using an example from the Great Depression, the National Surety Company. National Surety was a large and diverse insurance company that experienced a major crisis in 1933 due to losses from its guarantees of mortgage-backed securities. A liquidity crisis ensued, as policyholders staged a massive run on the company, demanding the return of their unearned premiums. The New York State Insurance Commissioner stepped in with a reorganization plan that split the company in two, out of fear that a disorderly liquidation would have systemic consequences given the sheer number of the companys counterparties, scattered all across the United States. A key dynamic of the crisis was that policy holders at an insurance company have a dual role as holders of liabilities and as providers of income.