Perspectives on Canadian bank insolvency during the 1930s

Carr, Mathewson, and Quigley (1995) (CMQ) introduce new archival evidence t o challenge the hypothesis that Canadian banks enjoyed considerable capital forbearance during the 1930s (Kryzanowski and Roberts 1993) (KR). This not e examines what the CMQ evidence has to tell us once opportunity-cost valua tion and agency costs in government and the accounting profession are stirr ed vigorously into the inferential stew. We show that none of the CMQ findi ngs is inconsistent with the original KR argument on capital forbearance. M ore broadly, we demonstrate how serious economic error can result from taki ng accounting and contractual formalisms at their face value.