The author is Assistant Professor of Economics and Finance, Department of Economics, Business and Political Science, Rosary College, River Forest, Illinois 60305. He is grateful for the helpful comments and advice given by Richard H. Keehn and Eugene White.

¹ Trescott, Paul B., “The Role of Bank Failures in the Economic Downswing of 1929–1933 in the U.S.” (unpublished manuscript), p. 31.Google Scholar

² James, F. Cyril, The Growth of Chicago Banks (New York 1938), vol. 2, p. 1086.Google Scholar Auditor of Public Accounts of the State Illinois, Statement Showing Total Resources and Liabilities of Illinois State Banks (Springfield, 12. 1927–12, 1933).Google Scholar

³ See James, , Chicago Banks, p. 953.Google Scholar Similar comments are found in Hoyt, Homer, One Hundred Years of Land Values in Chicago (Chicago, 1933), p. 445;Google Scholar and Thomas, G., “Concentration in Banking Control Through Interlocking Directorates As Typified By Chicago Banks,” The Journal of Business, 6 (01, 1933), p. 9.Google Scholar

⁴ James, , Chicago Banks, p. 958.Google Scholar

⁵ Hoyt, , One Hundred Years, p. 268;Google ScholarJames, , Chicago Banks, p. 996. Of the 29 banks which failed in 06 1931),Google Scholar 20 belonged to groups as given by Kline, . Kline, George W., “Group and Chain Banking in Chicago” (M. A. thesis, Northwestern University, 1931), pp. 75–79.Google Scholar

⁶ Thomas, , Concentration, pp. 5, 11;Google ScholarPalyi, Melchior, The Chicago Credit Market (Chicago, 1937), p. 159;Google ScholarKline, , “Group and Chain Banking,” pp. 82–84.Google Scholar

⁷ Thomas, , Concentration, p. 11;Google ScholarKline, , “Group and Chain Banking,” p. 97.Google Scholar

⁸ Communication with Trescott, Paul B. (02 13, 1981).Google Scholar See similar comments in James, , Chicago Banks, p. 953;Google Scholar and Thomas, Richard G., “Bank Failures—Causes and Remedies,” Journal Of Business, 8 (07 1935), p. 315. A question for future research is to what extent was Chicago unique in having a real estate boom which ended just prior to the onset of the stock market crash.Google Scholar

⁹ James noted that such liquidations took place in 1931. James, , Chicago Banks, p. 1029.Google Scholar

¹⁰ Ibid., p. 993.

¹¹ Ibid., pp. 1028–29.

¹² Federal Reserve Bulletin, 71 (06 1985), pp. 440–41.Google ScholarPrice Waterhouse, Banking Trends and Events (01–02 1985), pp. 2–3.Google Scholar

¹³ Thomas, , Bank Failures, p. 316.Google Scholar

¹⁴ White discussed the realtionship between portfolio quality and bank failures; Temin, on the other hand, wrote that bank failures of 1930–1932 did not result from ex ante poor loan portfolios. White, Eugene, “A Reinterpretation of the Banking Crisis of 1930,” this JOURNAL, 44 (03 1984), p. 137;Google ScholarTemin, Peter, Did Monetary Forces Cause the Great Depression (New York, 1976), p. 90.Google Scholar

¹⁵ In addition to the works of Cleveland and Thomas previously cited, the following works were used to develop the variables used in the multiple discriminant analysis: Dolbeare, Harwood B. and Barnd, Merle O., “Forewarning of Bank Failures: A Comparative Study of the Statements of Certain Failed and Successful Florida State Banks, 1922–1928,” Business Administration Series, University of Florida (06 1931), vol. 1;Google ScholarGarlock, Fred L.Country Banking in Wisconsin During the Depression, United States Dept. of Agriculture, Technical Bulletin No. 777 (Washington, D.C., 1941);Google ScholarFred, L. Garlock and Giles, B. M., Bank Failures in Arkansas, University of Arkansas, Agricultural Experiment Station Bulletin No. 315 (03 1935);Google ScholarRodkey, Robert G., “State Bank Failures in Michigan,” Michigan Business Studies, 2 (1935–1936);Google ScholarSecrist, Horace, National Bank Failures and Non-Failures (Bloomington, 1938).Google Scholar

¹⁶ As I am concerned with contemporary perceptions of portfolio quality, variables pertaining to asset size or to membership in the Federal Reserve System or the Chicago Clearing House Association have been omitted. It has been suggested that in efficient markets, the perceived riskiness of a bank would be reflected in the interest rates, explicit and implicit, paid to attract funds. I am currently examining Chicago newspapers for the years 1927 through 1930 to determine whether banks that belonged to groups and chains and that experienced high failure rates, and other failing banks, paid higher interest rates than non-failing banks.

¹⁷ A longer version of this paper, available from the author, contains similar tables for 1930 and 1932 and the variables found significant in the multiple discriminant functions.

¹⁸ Due to nonequality of group covariance matrices, individual covariance matrices were used for most of the classification tests. Only for the December 1927 and the June 1928 observations for 1931 bank failures was a linear discriminant function classification procedure used. See Altman, Edward I., Avery, Robert B., Eisenbeis, Robert A., and Sinkey, Joseph F. Jr, Application of Classification Techniques in Business, Banking and Finance (Greenwich, 1981), pp. 127–29.Google Scholar Sinkey found that in analyzing banks, a quadratic function was almost always necessary. Sinkey, Joseph F. Jr, Problem and Failed Institutions in the Commerical Banking Industry (Greenwich, 1979), p. 75. Discriminant function results for the December 1927 through June 1928 call periods are available from the author.Google Scholar