From a “normal recession” to the “Great Depression”: finding the turning point in Chicago bank portfolios, 1923-1933

Total Capital	Number of Banks	Number of Failures
Failure Rate
Less than $250,000	87	77	89%
$250,001-$375,000	16	14	88%
$375,001-$800,000	45	36	80%
More than $800,000	45	33	73%

Source: Statements.

²⁰ This was nevertheless done by Guglielmo (forthcoming).

From this table it appears that, contrary to Guglielmo’s conclusions, there is indeed a relationship between size and failure, although this relationship is not very strong. True, whether big or small, banks had a large failure rate, always above 70%. Nevertheless, it is still noticeable that banks with less than $250,000 in capital had 89% chances of failing, whereas banks whose capital went beyond $800,000 “only” had a failure rate of 73%. There is in fact a large literature on whether bank size matters for failure rates. The last part of this dissertation (Part III) briefly deals with the issue of branch banking in the US, which was prohibited at the time in the whole state of Illinois. Many authors (including Calomiris and Mason, 2003) have shown that prohibition of branch-banking was an important cause of failure. Moreover, state banks were often smaller than national banks, which may explain their higher failure rate. It will be seen through anecdotal evidence that one reason why they may have been more vulnerable was not necessarily so much a lack of asset diversification due to geographic constraints as it was a lack of training and knowledge in management.
Although bank size in general does not introduce any bias in financial ratios, outliers do. Table 5 shows summary statistics per cohort in terms of total capital in June 1929.
Table 5. Summary Statistics, June 1929