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Financial Failure and Depositor Quality: Evidence from Building and Loan Associations in California
Published online by Cambridge University Press: 16 March 2023
Abstract
Flightiness, or depositor sensitivity to liquidity needs, can be an important determinant of financial distress. I leverage institutional differences—that attract depositors with varying flightiness—across building and loan associations in California during the Great Depression. A new type of plan, the Dayton plan, involved less restrictive savings plans and lower withdrawal penalties. Dayton plans in California were more likely to close during the Great Depression. Archival evidence on lending rates and returns supports the flightiness mechanism.
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- © The Author(s), 2023. Published by Cambridge University Press on behalf of the Economic History Association
Footnotes
I would like to thank Chaewon Baek, Christopher Campos, Marina Dias, Eric Hilt (editor), Peter McCrory, Martha Olney, Mathieu Pedemonte, Gary Richardson, Christina Romer, David Romer, Jonathan Rose, Kenneth Snowden, and three anonymous referees for their helpful comments and suggestions. I would also like to thank the seminar participants at UC Berkeley. Albina Khatiwoda, Charles McMurry, and Jameson Weiss provided outstanding research assistance. I also acknowledge the All-UC Group in Economic History for providing funds for data collection. Any remaining errors are my own. The views in this paper are the responsibility of the author and do not necessarily represent those of the Federal Reserve Board or the Federal Reserve System.
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