Confronted with falling deposits and unable to liquidate mortgages without losing money banks turned to increasingly high-risk assets, which were often long term in order to boost earning. This only resulted in greater illi...
... middle of paper ...
...age holdings decrease its survival length increased. Of the five largest banks in Chicago only one failed, the four that survived had extremely low ratios of real estate loans to asset ranging from 0.5% - 2%, the bank that failed had 11%, this was equivalent to the average of other banks that failed at this time. Fire sales held by banks is further evidence that the banks were suffering from illiquidity as opposed to insolvency. Garlock and Gile support this assertion, “narrow margins of liquidity” in suspended banks, meant they were unable to survive deposit withdrawals. To this extent it is possible to trace the causes of illiquidity back to the agricultural crisis, and its role in turning small banks to higher risk long term assets that compromised their liquidity in the long run as they sacrificed their reserve to deposit ratio in order pursue increased earnings.
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