Which firms relied on commercial banks for credit and which firms did not at the onset of the Great Depression would seem to be an important question given the vast literature discussing banking distress in the United States during the 1930s. The question, however, has not been answered. This essay addresses that issue by analyzing data from an Internal Revenue Service publication, Statistics of Income. The hitherto unexplored data reveals that small firms in all industries borrowed heavily from commercial banks and relied on them for credit necessary to fund ongoing operations. The largest firms in most sectors deposited more in banks than they borrowed from them. Sectors whose firms depended most on commercial banks for credit were wholesaling, retailing, services, and the processing of agricultural products. In contrast, nearly half of economic activity in mining and construction, the majority of output in manufacturing, and the preponderance of firms in transportation operated independent of commercial banks
Authors
- Acknowledgements & Disclosure
- The authors received financial support from NSF Grants SES- 2214557 and SES-2214565 while completing this research The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- DOI
- https://doi.org/10.3386/w32918
- Pages
- 45
- Published in
- United States of America
Table of Contents
- 1. Introduction 3
- 2. Data 9
- 3. Aggregate Balance Sheets 15
- 4. Bank Borrowing and Firm Size 20
- 5. Trends Preceding 1929 24
- 6. Discussion 28
- References 31
- Table 1: Information on Firm Balance Sheets in Statistics of Income 34
- Table 2: Balance Sheets of Firms Filing Tax Returns in 1926 ($ Million) 35
- Table 3: Balance Sheets of Firms Filing Tax Returns in 1929 ($ Million) 36
- Table 4. Firms’ Relationships with Banks in 1926 37
- Table 5: Bank Dependence by Industry 38
- Table 6. Characteristics of Bank Dependent and Independent Firms 39
- Figure 1: Deposit Loan Ratios and Quick Ratios for Eight Industries in 1926 40
- Figure 3: Cash, Trade Credit, Loans, and the Deposit to Loan Ratio by Firm Size in 1926 41
- Figure 4: Bank Dependence and Independence by Industry 42
- Figure 5: Manufacturing and Trading Firms as Bank Creditors and Debtors 43
- Appendix on Data Sources 44