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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Eddy Blinker who wrote (71849)	10/14/2006 12:33:06 AM
From: JF Quinnelly	Respond to of 110194

The source I read, and I seem to recall it was Schumpeter, blamed the collapse of small rural banks on the peculiar American custom of prohibiting branch banking. In other parts of the world large money-center banks were able to set up branches outside of their immediate geographic area. In the event of a panic, parent banks were able to come to the aid of their weaker rural branches. American law prohibited geographical branch banking, and this made the independent rural banks particularly vulnerable during panics. They often had sound, but illiquid, investments and could fail during a bank run. In the early 1930s no one came to their aid. Large banks had problems of their own, and the Fed either didn't act to prevent their collapse. Or it may have been overwhelmed by the scope of the problem. There seems to be some dispute on whether or not the Fed did all that could to support the small banks. In a mere 3 years 30% of the American money supply, technically it was credit, evaporated as small banks failed.