TY - JOUR AU - Calomiris, Charles W AU - Mason, Joseph R AU - Weidenmier, Marc AU - Bobroff, Katherine TI - The Effects of Reconstruction Finance Corporation Assistance on Michigan's Banks' Survival in the 1930s JF - National Bureau of Economic Research Working Paper Series VL - No. 18427 PY - 2012 Y2 - September 2012 DO - 10.3386/w18427 UR - http://www.nber.org/papers/w18427 L1 - http://www.nber.org/papers/w18427.pdf N1 - Author contact info: Charles W. Calomiris Columbia Business School 3022 Broadway Street, Uris Hall New York, NY 10027 Tel: 212/854-8748 Fax: 212/316-9219 E-Mail: cc374@columbia.edu Joseph Mason Patrick F. Taylor 2164-A E. J. Ourso College of Business Louisiana State University Baton Rouge, LA 70803 Tel: 6108059083 E-Mail: joseph.r.mason@gmail.com Marc D. Weidenmier Argyros School of Business and Economics Chapman University One University Drive Orange, CA 92866 E-Mail: weidenmi@chapman.edu Katherine L. Bobroff Harvard Business School Soldiers Field Boston, Massachusetts 02163 E-Mail: klbobroff@gmail.com M1 - published as Charles W. Calomiris, Joseph R. Mason, Marc Weidenmier, Katherine Bobroff. "The Effects of Reconstruction Finance Corporation Assistance on Michigan's Banks' Survival in the 1930s," in Price Fishback, organizer, "The Microeconomics of New Deal Policy" Elsevier, Explorations in Economic History, 50(4) (2013) M3 - presented at "Microeconomics of the New Deal Confernce", July 26-27, 2012 AB - This paper examines the effects of the Reconstruction Finance Corporation's (RFC) loan and preferred stock programs on bank failure rates in Michigan during the period 1932-1934, which includes the important Michigan banking crisis of early 1933 and its aftermath. Using a new database on Michigan banks, we employ probit and survival duration analysis to examine the effectiveness of the RFC's loan program (the policy tool employed before March 1933) and the RFC's preferred stock purchases (the policy tool employed after March 1933) on bank failure rates. Our estimates treat the receipt of RFC assistance as an endogenous variable. We are able to identify apparently valid and powerful instruments (predictors of RFC assistance that are not directly related to failure risk) for analyzing the effects of RFC assistance on bank survival. We find that the loan program had no statistically significant effect on the failure rates of banks during the crisis; point estimates are sometimes positive, sometimes negative, and never estimated precisely. This finding is consistent with the view that the effectiveness of debt assistance was undermined by some combination of increasing the indebtedness of financial institutions and subordinating bank depositors. We find that RFC's purchases of preferred stock - which did not increase indebtedness or subordinate depositors - increased the chances that a bank would survive the financial crisis. We also perform a parallel analysis of the effects of RFC preferred stock assistance on the loan supply of surviving banks. We find that RFC assistance not only contributed to loan supply by reducing failure risk; conditional on bank survival, RFC assistance is associated with significantly higher lending by recipient banks from 1931 to 1935. ER -