This paper examines how the US financial crisis of 1893 affected state output growth between 1900 and 1930. The results indicate that a 1% increase in bank instability reduced output growth by 2–5%. A comparison of Nebraska, which had one of the highest bank failure rates, with West Virginia, which did not experience a single bank failure, reveals that disintermediation affected growth through a portfolio change among savers: people simply stopped trusting banks. Time series evidence from newspapers indicates that articles containing the words “money hidden” significantly increase after banking crises, then slowly die out.

This article presents evidence suggesting that the relationship that existed between the partnership of J. P. Morgan and its client firms partially resolved the latter's external financing problems by diminishing the principal-agent and asymmetric information problems. I estimate and compare investment regression equations for a sample of Morgan-affiliated companies and a control group of nonaffiliated companies. The econometric results seem to indicate that companies not affiliated to the House of Morgan were liquidity constrained.

This article presents evidence suggesting that the relationship that existed between the partnership of J. P. Morgan and its client firms partially resolved the latter's external financing problems by diminishing the principal-agent and asymmetric information problems. The author estimates and compares investment regression equations for a sample of Morgan-affiliated companies and a control group of nonaffiliated companies. The econometric results seem to indicate that companies not affiliated to the house of Morgan were liquidity constrained.

This article presents evidence suggesting that the relationship that existed between the partnership of J. P. Morgan and its client firms partially resolved the latter's external financing problems by diminishing the principal‐agent and asymmetric information problems. I estimate and compare investment regression equations for a sample of Morgan‐affiliated companies and a control group of nonaffiliated companies. The econometric results seem to indicate that companies not affiliated to the House of Morgan were liquidity constrained.

We measure the effect of bank failures on economic growth using data from 1900 to 1930, a period without active government stabilization policies and several severe banking crises. VAR model estimates suggest bank failures have long-lasting negative effects on economic growth. A bank failure shock involving one percent of system liabilities leads to a 6.5% reduction in GNP growth within three quarters and a measurable reduction for 10 quarters. Panel VAR model estimates for the 48 states show bank failures aggravate commercial non-bank failures. Institutional and regulatory features affect the intensity of the bank failure effect. We find that bank failures have a larger impact in states with deposit insurance, in states more heavily concentrated in agriculture, and in states with fewer large firms. However, because a number of states exhibit all three characteristics, we are not able to clearly identify the true marginal effects of these factors independently.

Using a large sample of U.S. mortgages observed over the 2005–2009 period, we document contagion effects in strategic mortgage defaults. Strategic defaults result from borrowers choosing to exercise their in the money default option and our findings suggest this choice is influenced by the delinquency rate in surrounding zip codes (within a 5 mile radius), after controlling for other known determinants of mortgage default. These controls include a large array of borrower and loan characteristics, local demographic and economic conditions, spatial correlations, and changes in property values. Our findings that the local area delinquency rate is an important factor for strategic defaulters (borrowers that can be influenced in their decision) but not for defaults that are the result of inability to pay (borrowers that had no choice) lend support the contagion hypothesis. Our estimates suggest that a 1% increase in the local area delinquency rate may increase the probability of a strategic default by 7.25–16.5%.

Existing research generally finds that the magnitude of the effect of supervisory rating shocks on real economic activity is small and short-lived. This finding is puzzling because downgrades, especially substantial ones, often include lending restrictions and thus would be expected to have a strong effect on real activity. We use the local projections approach to investigate whether this anomaly can be explained by nonlinearities or asymmetric effects; our empirical results indicate that they are indeed present. In particular, we find that the effects are asymmetric: bank downgrades lead to a pronounced decline in real activity, while upgrades do not result in its increase. Furthermore, we document the presence of nonlinear effects for the downgrade—but not upgrade—shocks, as their impact increases disproportionately with its size.