Download This PaperBanking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock
59 Pages Posted: 28 Nov 2017 Last revised: 19 Jun 2022
There are 2 versions of this paper
Banking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock
Banking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock
Date Written: November, 2017
Abstract
How do banks respond to asset booms? This paper examines i) how U.S. banks responded to the World War I farmland boom; ii) the impact of regulation; and iii) how bank closures exacerbated the post-war bust. The boom encouraged new bank formation and balance sheet expansion (especially by new banks). Deposit insurance amplified the impact of rising crop prices on bank portfolios, while higher minimum capital requirements dampened the effects. Banks that responded most aggressively to the asset boom had a higher probability of closing in the bust, and counties with more bank closures experienced larger declines in land prices.
Keywords: Asset booms and busts, banks, bank lending, bank entry, bank closures, deposit insurance, regulation
JEL Classification: E58, N21, N22
Suggested Citation: Suggested Citation