Chung, Ching-Yi, Bank and economic development in China and the United States during the 1920s and 1930s (2004)

Title : Bank and economic development in China and the United States during the 1920s and 1930s

Author(s) : Chung, Ching-Yi

Year : 2004

Type : Dissertation

Subject : Unknown

Keywords : bank, finance, money, economy

University : UNIVERSITY OF CALIFORNIA, IRVINE

Language:Name : English

Support : Print

Abstract : This dissertation consists of three chapters on bank and economic development. The first two chapters focus on China and the last on the United States. The first chapter examines the relationship between the levels of managerial ownership and bank performance using archival data on banks in Shanghai between 1912 and 1937. Using panel data econometric techniques, the analysis finds that manager's equity stake in the bank explains little of bank's performance. Possible explanations for the apparent insignificance of managerial ownership include the level of managerial labor supply, managers' desire to raise their financial and/or social status and the guarantor system, which directly or indirectly promoted high levels of performance. The second chapter compares the lending and investment patterns of Chinese and foreign banks and examines how these differences influence economic growth in China in the 1930s. Estimation results show that foreign banks invested eight percent more in stocks and bonds than Chinese banks. This difference harmed the Chinese economy for a brief period between 1932 and 1935. When examining the history of Chinese banking and financial market development, we can see that foreign banks diverted capital away from China to invest in securities and debt issued in their home countries. China lacked such markets and thus could not retain funds within its boundaries. The third chapter examines banks and the deposit insurance policy in the United States for the same period as the previous two chapters. Eight states established deposit insurance systems between 1908 and 1917. All abandoned the schemes between 1921 and 1930. New data drawn from the archives of the Federal Reserve Board of Governors demonstrate that deposit insurance influenced the composition of bank suspensions in those states. In typical years, suspensions due to runs fell. Suspensions due to mismanagement rose. During the penultimate year of each system, the suspension rate rose to an unsustainable height and the system suspended operations. The experiences of these eight states provide lessons for deposit insurance systems in developing nations today.