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Understanding Bank Relationships and Bank Closures in the Great Depression

A recent working paper on interbank connections—like those that garnered so much attention during the Financial Crisis of 2007-09—explores the degree to which those connections helped spread financial shocks through the banking system during the Great Depression. The paper, by Charles W. Calomiris, Matthew Jaremski, and David C. Wheelock, uses newly digitized data for 1910, 1919, and 1929 to show that relationships between banks helped transmit financial shocks across the country and cause bank failures. Their analysis also shows that highly connected banks generally held lower capital and liquid assets in the years after the founding of the Federal Reserve, suggesting that the banks expected the Fed to reduce systemic risk. 

Find the full paper here