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Title:The determinants and effects of Reconstruction Finance Corporation assistance to banks during the Great Depression
Author(s):Mason, Joseph Russell
Doctoral Committee Chair(s):Calomiris, Charles W.
Department / Program:Economics, Finance
Economics, History
Discipline:Economics, Finance
Economics, History
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Economics, Finance
Economics, History
Abstract:Regulators and academics have maintained that assisting individual problem banks on a case-by-case basis can effectively ameliorate failure risk. In order to test this assertion, I investigate the effectiveness of open-bank assistance provided by the Reconstruction Finance Corporation during the 1930s.
Three reasons are presented to explain why RFC assistance may have had little or no estimable effect on bank failures: (1) The magnitude of the program was too small; (2) Politics may have interfered in the allocation of funds; (3) The structure of RFC bank assistance programs, i.e., the maturity of the financing or the security maintained, may have been inefficient. While several aggregate macroeconomic studies of the magnitude of RFC programs exist, these have, on the whole, been inconclusive. Therefore I focus my analysis on politics and the structure of RFC programs.
I use state-level RFC, political, and economic data to study the effects of politics on the allocation of RFC assistance. Based on these data, I conclude that politics did not affect significantly the allocation of RFC assistance.
I then use a panel of individual bank RFC and financial data to provide quantitative evidence that the effectiveness of RFC bank assistance programs varied according to the amount of default risk assumed. I find that recapitalization was the most effective open-bank assistance policy option. Strategies that assumed little default risk (such as collateralized lending) may have actually destabilized banks. Furthermore, I find no evidence to support the contemporary assertion that publicity of the names of banks receiving assistance had any negative influence on survival.
The dissertation concludes with a review of the findings, and suggestions for improving upon the aggregate macroeconomic evaluations of the size of RFC bank assistance programs.
Issue Date:1996
Rights Information:Copyright 1996 Mason, Joseph Russell
Date Available in IDEALS:2011-05-07
Identifier in Online Catalog:AAI9702603
OCLC Identifier:(UMI)AAI9702603

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