The graph below shows the number of bank suspensions from 1864 to 1970 year by year, where “bank suspension” means the following:
“The term ‘bank suspension’ has been defined to comprise all banks closed to the public, either temporarily or permanently, by supervisory authorities or by the banks’ boards of directors on account of financial difficulties, whether on a so-called moratorium basis or otherwise, unless the closing was under a special banking holiday declared by civil authorities. In the latter case, if the bank remained closed only during such holiday, it was not counted as a suspension. Banks which, without actually closing, merged with other banks or obtained agreements with depositors to waive or to defer withdrawal of a portion of their deposits likewise were not counted as suspended.” (U.S. Department of Commerce 1975: 1015).The graph is below (the data is from U.S. Department of Commerce 1975: 1038, Series X 741–755).
The data are very good from 1921 onwards, but before this are often fragmentary and far less comprehensive. The further one goes back, the less complete is the data, so that for most of the 19th century the figures are useful only for gauging periods of bank distress and financial crisis, not for truly accurate and complete data on the actual number of suspensions in each year. That is, the data before about 1892 are far from being directly comparable to the data after this date, and even for 1892 to 1920 not completely comparable to the post-1921 data, even if much more reliable than pre-1892 data (U.S. Department of Commerce 1975: 1015).
Despite these caveats, the data are very interesting indeed.
It is better to break the graph up into smaller ones to see the trends better.
First, we can look at bank suspensions from 1864 to 1914 in the graph below.
The rising bank failures in the 1870s coincides with the economic distress and problems of these years, and the surge in failures in 1893 is not surprising given the financial crisis in that year.
Next, we can look at the graph of bank suspensions from 1915 to 1935 below.
The 1929–1933 years were a period of utter catastrophe, in which thousands of US banks, especially large ones, failed, destroying the life savings and deposits of millions of Americans. This was one of many reasons why the depression was so bad, and the Federal Reserve was grossly incompetent in allowing so many banks to fail.
What is also interesting is that there was a surge in bank failures in the 1920 to 1921 recession but it was clearly nowhere near as bad as the 1929–1933 crisis years.
We can see this in the data in table form, as below:
US Bank Suspensions 1916 to 1933In 1920 to 1921 there seems to be some evidence that many banks that failed then were actually small rural banks, so that macroeconomic effects of these failures were not as great as the raw numbers suggest. Furthermore, the standard lender of last resort facility at the Fed via discounting policy proved sufficient to avert a mass panic and bank runs. By contrast, in 1929–1933 much more radical intervention was required by the Fed but not forthcoming.
Year | Number
1916 | 52
1917 | 49
1918 | 47
1919 | 63
1920 | 168
1921 | 505
1922 | 367
1923 | 646
1924 | 775
1925 | 618
1926 | 976
1927 | 669
1928 | 499
1929 | 659
1930 | 1352
1931 | 2294
1932 | 1494
1933 | 4004
(U.S. Department of Commerce 1975: 1038).
It is also puzzling why there was a rising trend in bank failures during the Roaring Twenties from 1923 to 1926. The explanation here is that, as in 1920 to 1921, many small rural banks failed in the 1920s as agricultural commodity prices plunged. Many banks had lent to farmers and agricultural producers in WWI, but as farm revenues fell in the 1920s and many farmers defaulted on loans and foreclosures mounted, many rural banks also failed (Thomas 1997: 381–382). The crucial point here, then, is that most of the banks that failed in the 1920s were small rural banks with relatively small total deposits and so the macroeconomic effects of these failures were also small (Fuller 2011: 12).
Finally, we can see a graph of bank suspensions from 1925 to 1970 in the graph below.
It should be noted that for the 1934 to 1940 period the total number of suspensions in these years seems to be 448 (U.S. Department of Commerce 1975: 1038), but it is difficult to indicate this in the graph, so I have been reduced to giving 448 as the value in each year from 1934 to 1940 (a misleading but quick solution I found). Likewise, the total number of suspensions from 1941 to 1946 was 49, but I have given 49 as the value in each of these years.
At any rate, once the Federal Reserve really started acting as an effective lender of last resort, federal deposit insurance was instituted, and banks were subject to an effective system of financial regulation, the numbers of failures plummeted. By the late 1950s, less than 10 bank failures each year usually occurred, and even then deposits were protected and not lost, as in previous eras. This is yet another reason why the golden age of capitalism was an unprecedented era of prosperity and stability.
Fuller, Robert Lynn. 2011. Phantom of Fear: The Banking Panic of 1933. McFarland & Company, Inc., Jefferson.
Thomas, Lloyd B. 1997. Money, Banking, and Financial Markets. McGraw-Hill Companies, Boston, Mass and New York.
U.S. Department of Commerce. 1975. Historical Statistics of the United States: Colonial Times to 1970. U.S. Government Printing Office, Washington, DC.