An examination of country member bank cash balances of the 1930s: A test of alternative explanations

Around March 1933, commercial banks began accumulating unprecedented amount s of cash. Uncertainty over deposits and loans, low interest rates relative to brokerage fees, and costly de novo capital have been used to explain th is behavior. This paper employs aggregate call-date data for country member banks in the 12 Federal Reserve districts to formally investigate the role of these factors in the accumulation. The results indicate a minimal, if a ny, role for these factors. The findings suggest that it was the unintended consequence of unprecedented deposit growth in the face of large scale-rel ated adjustment costs.