• Sarah Quincy, Candidate for Assistant Professor of Economics
    Sarah Quincy, Candidate for Assistant Professor of Economics
    Kelly Lessard
  • Sarah Quincy, Candidate for Assistant Professor of Economics
    Sarah Quincy, Candidate for Assistant Professor of Economics
    Kelly Lessard
“LOANS FOR THE LITTLE FELLOW:” CREDIT, CRISIS, AND RECOVERY IN THE GREAT DEPRESSION

Credit has large effects on the health of the economy, especially during financial crises – but is this driven by credit supply or credit demand? This paper uses newly-collected data and previously unexplored variation to analyze how credit supply shocks affect economic activity. Specifically, I compare cities in California during the Great Depression based on their pre-crisis exposure to the Bank of America. The Bank of America was the only bank in California large and geographically diversified enough to weather the Great Depression without shutting lending down completely. However, it did not select into better performing cities before the Depression. I find that cities with access to more stable lending from 1929 to 1933 had smaller contractions in economic activity in the same period. While cities with relatively little credit access from 1929 to 1933 did not recover to 1929 levels until 1940, Bank of America-branched cities grew by 25 percent in that period. Confirming the city-level results, there is a credit availability wage premium in individual-level data, even when controlling for workers’ pre-crisis characteristics. These increases in wages are driven by a reallocation towards nontradable employment at the expense of the agricultural sector, indicating credit supply induces structural transformation.