Alternatives For Distressed Banks And The Panics Of The Great Depression

Several studies have explored whether the banking panics of the Great Depression caused some institutions to fail that might otherwise have survived. This paper adopts a different approach and investigates whether the panics resulted in the failure and liquidation of banks that might otherwise have been able to pursue a less disruptive resolution strategies such as merging with another institution or suspending operations and recapitalizing. Using data on individual state-chartered banks, the author finds that many of the banks that failed during the panics appear to have been at least as financially sound as banks that were able to use alternative resolution strategies.