Banking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock
Year: 2020
Type: article
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 postwar 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.
DOI: 10.1111/jmcb.12725
Authors: MATTHEW JAREMSKI, DAVID C. WHEELOCK
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W4285655183