Perspectives on Canadian Bank Insolvency During the 1930s
Posted: 4 Sep 1998
Carr, Mathewson and Quigley (1995) (CMQ) introduce new archival evidence to challenge the hypothesis that Canadian banks enjoyed considerable capital forbearance during the 1930s (Kryzanowski and Roberts 1993) (KR). This note examines what the CMQ evidence has to tell us once opportunity-cost valuation and agency costs in government and the accounting profession are stirred vigorously into the inferential stew. We show that none of the CMQ findings is inconsistent with the original KR argument on capital forbearance. More broadly, we demonstrate how serious economic error can result from taking accounting and contractual formalisms at their face value.
JEL Classification: N22
Suggested Citation: Suggested Citation