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An Examination of Country Member Bank Cash Balances of the 1930s: A Test of Alternative Explanations
Author(s) -
Mounts Wm. Stewart,
Sowell Clifford B.,
Saxena Atul K.
Publication year - 2000
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2000.tb00303.x
Subject(s) - cash , monetary economics , capital (architecture) , economics , unintended consequences , test (biology) , business , finance , geography , paleontology , archaeology , political science , law , biology
Around March 1933, commercial banks began accumulating unprecedented amounts of cash. Uncertainty over deposits and loans, low interest rates relative to brokerage fees, and costly de novo capital have been used to explain this behavior. This paper employs aggregate call‐date data for country member banks in the 12 Federal Reserve districts to formally investigate the role of these factors in the accumulation. The results indicate a minimal, if any, role for these factors. The findings suggest that it was the unintended consequence of unprecedented deposit growth in the face of large scale‐related adjustment costs.