Businesses and Borrowing during the Roaring ‘20s and at the Onset of the Great Depression

Which firms relied on commercial banks for credit and which firms did not at the onset of the Great Depression would seem to be an important question given the vast literature discussing banking distress in the United States during the 1930s. The question, however, has not been answered. This essay addresses that issue by analyzing data from an Internal Revenue Service publication, Statistics of Income. The hitherto unexplored data reveals that small firms in all industries borrowed heavily from commercial banks and relied on them for credit necessary to fund ongoing operations. The largest firms in most sectors deposited more in banks than they borrowed from them. Sectors whose firms depended most on commercial banks for credit were wholesaling, retailing, services, and the processing of agricultural products. In contrast, nearly half of economic activity in mining and construction, the majority of output in manufacturing, and the preponderance of firms in transportation operated independent of commercial banks