U. IOWA (US) — Great Depression-era bank suspensions have had a lasting harmful effect on the hardest-hit communities, affecting suicide rates and disheartening residents decades later.
Counties with higher bank suspension rates in 1930 experienced elevated suicide rates 70 years later, according to a new study, which also says those communities are less residentially stable and residents living there are less trusting.
The study is published in the journal Suicide and Life-Threatening Behavior.
“Economists have demonstrated that banking distress in the Great Depression damaged communities in terms of subsequent incomes and new construction,” says Rob Baller, associate professor of sociology at the University of Iowa.
Baller says the communities resemble the fictional town of Pottersville in the film It’s a Wonderful Life.
“Our results suggest that these communities came to exhibit other ills that lasted for decades, including diminished trust and higher suicide rates.”
The findings point to the importance of better regulation of the financial industry.
“When a big bank like Lehman Brothers fails, you hear about ripple effects on other parts of the economy, but this study provides evidence that the consequences are much more than financial,” Baller says. “And, with banks being far more global today than in the 1930s, these consequences could be far reaching.”
Recent legislation has increased consumer protections. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 permanently raised Federal Deposit Insurance Corp. coverage from $100,000 to $250,000 per depositor, created new regulations for derivatives and increased capital requirements for financial institutions.
“Bank markets in 1930 did not enjoy protections we have today, including federal deposit insurance,” Baller says. “Our results point to the long-term and harmful consequences of those relatively unregulated markets.”
Nationwide, bank suspensions and failures soared to 1,350 in 1930, when banks were unable to meet customer demand for withdrawals.
With few restrictions in place, the banks made risky loans—and when unemployment shot up and agricultural prices fell, borrowers were unable to make payments. Word that the bank was broke would spread through a community, creating a panic known as a “bank run.” When banks couldn’t come up with the cash, they were forced to shut down and depositors lost some or all of their money.
The study examined data from more than 2,600 counties east of the Rocky Mountains, where bank suspension rates were on average four times higher than those in the western United States. Suicide rates for those counties were examined in 1999-2001, using data from the National Center for Health Statistics.
To isolate the link between the suspensions and suicides, Baller m controlled for other factors that may have influenced that relationship, including the value of agricultural goods, radio ownership, and unemployment in 1930, loss of male population during World War II, and contemporary measures of unemployment, social integration, inequality, poverty, divorce, religiosity, race, and age.
“The effect of Depression-era bank suspensions on contemporary suicide rates was small–about seven times smaller than the effect of contemporary poverty and inequality–but it’s still a non-zero effect, and the fact that it has lasted for over 70 years is significant and worth reporting,” Baller says.
The relationship between bank suspensions and trust and demoralization was made by examining 83 communities’ responses to the General Social Survey conducted in the mid-1970s. Residents in each community answered questions that reflected their outlook on the future and how much people cared about each other.
“People in these communities may not have experienced the Great Depression first-hand, but our research suggests that the cultural consequences of suspensions, especially as they relate to trust and demoralization, have been passed along for generations,” Baller says.
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