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Network Contagion and Interbank Amplification during the Great Depression

Kris James Mitchener, Gary Richardson

NBER Working Paper No. 22074
Issued in March 2016
NBER Program(s):The Program on the Development of the American Economy, The Monetary Economics Program

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.

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Document Object Identifier (DOI): 10.3386/w22074

Published: Kris James Mitchener & Gary Richardson, 2019. "Network Contagion and Interbank Amplification during the Great Depression," Journal of Political Economy, vol 127(2), pages 465-507.

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