The Banking Panics of the Great Depression.

• Author: Butkiewicz, James L.

The European and American banking panics of the 1930s are one of the most notable features of the Great Depression. Many scholars have argued that the panics are an important cause, if not the most important cause, of the Great Depression.

In this new book Elmus Wicker reexamines the U.S. banking panics during the period 1930 to 1933. Many previous studies of the financial crises focus on the macroeconomic implications of the panics. Wicker extensively reviews the details of each panic, to determine the proximate causes of each. Through this analysis, Wicker offers important new insights into the cause, as well as the macroeconomic implications, of each panic.

Wicker begins by differentiating the panics of the pre-Federal Reserve era from those which occurred after the Fed was established. A particularly important difference is that the pre-Fed panics occurred in the New York money markets, while the post-Fed panics occurred in the interior. This had important implications for the Fed's response to the later panics.

In Chapter two, Wicker reviews the banking crisis of 1930. Much of this chapter is an elaboration of his previous work examining the failure of Caldwell and Company, a major banking chain located in the southeastern United States. Wicker demonstrates that the effects of the panic were largely confined to the Federal Reserve districts in which the Caldwell banks were located, St. Louis, Richmond, and Atlanta. Wicker's unit of analysis is the individual Federal Reserve district, the smallest unit for which data are available. He finds that increases in outstanding currency were largely confined to those districts in which the Caldwell banks were located.

Wicker argues that the failure of the Bank of United States, which occurred toward the end of the Caldwell panic, was not a cause of an aggregate increase in currency demand, nor did it unsettle conditions in the New York money market. Wicker feels that the primary motive for the increased currency holdings was the failure of the Caldwell and Company banks. In addition, he notes that a drought in 1930 reduced the profitability of many banks within the same Federal Reserve districts where the Caldwell banks were located.

Using changes in bank debits as a proxy for expenditure changes, Wicker finds that the expenditure effects of the panic were limited to the St. Louis Federal Reserve district. Wicker concludes that the panic of 1930 was a regional event, and thus casts doubt on the hypothesis that this crisis was the...