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March 17, 1939

DBIAND DEPOSIT BEHAVIOR PRIOR TO SUSPENSION IN A
SELECTED GROUP OF BANKS ANALYSIS BY TYPE OF DEPOSIT HOLDER

This report is being sent to you for comments which
will be utilized in making a final draft for publication
in the April Federal Reserve Bulletin.




Lauchlin Currie
Assistant Director
Research and Statistics

MAR* 1*7

DEMAND DEPOSIT BEHAVIOR PRIOR TO SUSPENSION IN A SELECTED GROUP OF BANKS
ANALYSIS BY TYPE OF DEPOSIT HOLDER

The March 1939 Federal Reserve Bulletin presented a preliminary analysis of data recently made available by a Works Progress Administration
study of the records of a group of banks suspended in the period 1930-1933.
The data introduced there suggested that large demand deposits exhibited
a greater instability than small demand deposits. Moreover, the percentage
reduction of balances in the period prior to suspension became consistently
greater as the sise of the account increased.
The present discussion classifies similar statistical material by
type of holder. This classification has a twofold purpose. The first is
to discover whether or not there exist significant variations in the presuspension behavior of the deposits of different types of holders. The
second objective is an exploration of the possibility that the variations
observed in the behavior of deposits of different sizes are mere reflections of more significant differences in the behavior of deposits owned by
different types of deposit holders.
Deposit reductions were measured from a base date to date of suspension* The base dates selected were dates on which banks suspended at
different times had not yet experienced serious deposit withdrawals. For the




-2-

nine banks suspended before June 30, 1931, the base date is June 30, 1928,
The base date is June 30, 1931 for the fifty-eight banks suspended thereafter. In the following pages, deposit balances on the base date are referred to as "normal" balances and the composition of total deposits on
the base date is referred to as the "normal11 composition. In this article,
interbank deposits are treated as a part of total demand deposits.
The results of the investigation may be summarised as follows:
1, Withdrawals from business accounts comprised tho largest single
item in presusponsion domand deposit reduotionsf accounting for 42$ of
tho total. The contribution of business balances to presuspension deposit
reductions was somewhat greater than their "normal" contribution to tho
composition of total deposits (38,4$), The presuspension reduction of
business deposits represented 48% of "normal" business balances•
2, Interbank withdrawals were second in importance, comprising 25,9$
of the total presuspension decline in demand deposits, *The substantial
contribution of interbank withdrawals to deposit losses can be explained
by the extreme instability of this class of accounts. Interbank deposits
decreased 5 9 f o f their "normal" level, a percentage decline considerably
in excess of those shown by personal demand deposits, business demand deposits, ot public funds,
3f

Personal deposits contributed 12,95? of the total deorease in de-

mand deposits, slightly less than their share (13,3$) in the composition




-3-

of total demand deposits» The presuspension reduction of personal deposits represented 42«S$£ of "normal* personal balanoes. Personal accounts are less stiable than business accounts of comparable size but
because personal bklances are predominantly small balances, personal
accounts as a whole are more stable than business accounts as a whole*
4. In general, variations distinguishable in the behavior of deposits of different holders are distinctly less pronounced than those
discovered in deposits of different sizes• The same general differences
in the behavior of accounts of different sizes appear in the data classified by type of holder as in the data for all types of holders *
5* Comparisons of the presuspension behavior of deposits owned by
holders engaged in different types of business show relatively minor
differences • There appears to be no consistent tendency for withdrawals
of certain types of business demand deposits to exceed others.
Limitations, of the Data
The figlares presented in this discussion have been drawii from a
group of sixty-seven medium sized banks, suspended during the period
November 1930 to March 1933. The size and location of these banks are
described in the March 1939 Bulletin, page 179. As the present analysis
consists of a reclassification of the same basic data, it is subject to
similar statistical qualifications. It should be notod that the figures
for the percentage composition of deposits in this article are based on




-4-

"Total demand deposits, inclusive of interbank". The category "Miscellaneous demand deposits" includes fraternal, charitable, inactive, unlisted, unidentified and other nonpersonal deposits as well as certificates of deposit. The largest component of miscellaneous demand deposits
is unidentified deposits, that is, deposits whose ownership could not be
definitely assigned either to a business ooncem or to a person using the
account primarily for nonbusiness transactions. It is probable that the
bulk of those deposits are personal balances.
The Allocation of the Pre suspension Decrease in Deposits
The figures shown in Table 1 indicate the extent to which the withdrawal of different classes of deposit holders contributed to the total
decrease in deposits. The contribution of public funds to the total
withdrawal was not largo in any group of banks, although the behavior of
these deposits was somewhat irregular, showing increases in banks suspending before the end of 1931 and making a small contribution to the total
reduction of deposits in banks suspended later. Personal and business
deposit reductions were responsible for more than half (54«9j£) of all
deposit losses, and the bulk of these were withdrawals of business deposits
(42$). The major part of business withdrawals in turn was attributable
to the larger accounts; those in excess of $5,000 being responsible for
Z7% of the total deposit reduction. Interbank withdrawals represent
25*9% of the total decline, a share considerably greater than that of




-5-

Table 1
ALLOCATION OF THE DECREASE
IN TOTAL DEPOSITS BETWEEN BASE DATEi/ AND DATE OF SUSPENSION
BY TYPE OF HOLDER

Type of holder

Total decrease in demand
deposits, inclusive of
interbank

9 banks
67
suspended
sample
before
banks June 30, 1931

44 banks
14 banks
suspended
suspended
after
between
December 31, 1931
June 30, and
December 31, 1931

100.0

100.0

100.0

4.3
25.9

2/

2/

13.6

42.9

8.6
25.2

14.9
54.9

31.9
69.4

9.2
48.4

12.8
53.4

12.9
42.0

16.6
52.8

10.7
37.7

12.6
40.8

Less than #5,000:
Personal
Business

7.1
5.0

9.1
1.9

3.9
2.9

7.3
6.0

#5,000 and over:
Personal
Business

5.8
37.0

7.5
50.9

6.8
34.8

5.3
34.8

Public funds
Interbank deposits
Miscellaneous demand
deposits^/
Personal and business
Personal
Business

100.0

^June 30, 1931 for banks suspended after that date; June 30, 1928 for those suspended earlier. For a fuller explanation see p.
^Increase
Fraternal, charitable, other non-personal, inactive, unlisted, unidentified, and
certificates of deposit




-6

all personal accounts* Business and interbank deposits together account
for about two-thirds of the total reduction of deposits.
The contribution of a class of deposits to the total deposit decline
depends upon two factors. The first is the importance of the class in
the original composition of total deposits. Clearly any class representing a very large share of a bank1s total deposits may be responsible for
substantial deposit reductions even though the accounts in this class are
less heavily drawn upon than other accounts. The second factor is the
stability of the accounts in the class. It is apparent that any group of
accounts showing exceptional instability in times of stross may exercise
an influence on deposit lossbs of substantially greater importance than
its contribution to the original composition of total deposits.
In Table 2, the composition of total deposits is compared with the
composition of the deposit docline. Interbank deposits constituted about
one-fifth of all deposits, but accounted for about one-fourth of deposit
reduction. Personal deposits accounted for slightly loss than their proportionate share of the deposit decline. The reverse was truo of business
deposits. If personal and business deposits are divided into comparable
sizo groups, it becomes clear that size is a factor of sufficient importance
in deposit reduction to obscure the variations between groups of deposits
having different size compositions * Withdrawals from business accounts
under $5,000 represented only 5% of the total deposit reduction, although




-7-

Table 2
ALLOCATION OF THE DECREASE
IN DEMAND DEPOSITS BETWEEN BASE DATE AND SUSPENSION IN ALL SAMPLE BANKS
BY TYPE OF HOLDER

Percentage composition
of the decrease in
demand deposits

Percentage composition
of total
demand deposits
on base date

100,0

100.0

4.3
25.9

10.5
19.1

14.9
54.9

18.7
51,7

12.9
42.0

13.3
38.4

Less than #5,000:
Personal
Business

7.1
5.0

9.3
9.3

#5,000 and over:
Personal
Business

5.8
37.0

4.0
29.1

Type of holder

Total demand deposits,
inclusive of interbank
Public funds
Interbank deposits
Miscellaneousi/demand
deposits
Personal and business
Personal
Business

Fraternal, charitable, other non-personal, inactive, unlisted, unidentified, and certificates of deposit




.8-

these accounts constituted 9#3% of total deposits on the base date. 4 Corresponding figures for personal accounts are 7.1$? and 9.3%. In the oase
of accounts of $5,000 and ovor, both business and personal accounts showed
withdrawals representing a larger share of total deposit losses than their
original contribution to total deposits. Large business accounts represented 29*1% of total deposits, but had a substantially greater share in
deposit reduction (37%). Large personal accounts constituted only 4% of
all deposits, but were responsible for 5*8% of all deposit losses.
Table 3 measures directly the presuspension instability of deposits
owned by different types of holders. The decrease in deposits between
base date and date ef suspension is measured as a percentage of the deposits in each class on the base date. Considering all sample banks,
total demand deposits, inclusive of interbank, decreased 43f9%m

Over the

entire peried, interbank deposits exhibit considerably greater percentage
reductions than personal or business deposits or public funds; in the
case of banks suspending during the last six months of 1931 more than
five-sixths of the normal balances in this class of accounts were withdrawn before suspension. Personal accounts are consistently less stable
than business accounts of comparable size, but business balances are predominantly large balances and thus business accounts as a whole are less
stable than personal acoounts as a whole. The percentage reductions in
personal accounts exceed those of business acoounts in the oase of accounts under $5,000 as well as in the case of accounts of $5,000 and over.




Table 3
PERCENTAGE CHANGES IN DEMAND DEPOSIT BALANCES BETWEEN BASE DATE AND DATE OP SUSPENSION
BY TYPE OF HOLDER

67
sample
banks

9 banks
suspended
before
June 30, 1931

14 banks
suspended
between
June 30, and
December 31, 1931

44 banks
suspended
after
December 31, 1931

-43.9

-35.6

-38.9

-47,0

-17.8
-59.6

+80.4
-21.1

+2J2
-84,5

-34.5
-60.9

-35.0
-46.6

-56.3
-44.2

-17.5
•37.1

-33.4
-49.3

Personal
Business

-42.6
-48.0

-40.7
-45.4

•31.8
-38.9

-45.5
-50.6

Less than #5,000:
Personal
Business

-33.4
-23.8

-30.3
-8.7

•18.0

-10.9

-37.3
-29.8

|5,000 and over:
Personal
Business

-64.5
-55.7

-69.7
-54.0

-57»2
-49.4

-65.0
-57.6

Type of holder

Total demand deposits,
inclusive of interbank

i
i




Public funds
Interbank deposits
Miscellaneous demand
deposits!/
Personal and business

1/

Fraternal, charitable, other non-personal, inactive, unlisted, unidentified, and certificates of deposit

-10-

Table 4 presents a more detailed comparison of the behavior of business and personal deposits of different sizes. Tho presuspension decrease
in personal deposits exceeds the decline in business deposits in each size
class shown, but the excess is clearly of a different order of magnitude
than the difference in variation of large and small deposits.
Certain classes of accounts show significant variations of behavior
in banks suspended during different periods. Both public funds and small
business deposits exhibit a tendency toward increasingly heavy withdrawals
over tho period. Although the contrast in the behavior of small business
accounts and large business accounts is marked throughout tho period, the
rate of reduction in accounts of loss than $5,000 moro closely approaches
the rate of reduction in larger business accounts in banks suspended after
tho end of 1931 than in banks suspended earlier. Increasingly heavy withdrawals of public funds and small business deposits may reflect the widening spread of apprehension from the middle of 1931 until tho Banking Holiday 4
Behavior of Business Demand Deposits Classified by Typo of Business
In Table 5, business demand deposits are grouped according to tho
type of business in which their holders arc engaged. Similar tabulations
are made for aocounts loss than $5,000 (Tablo 6) and for accounts of
$5,000 and ovor (Table 7). Tho differences in tho percentage reductions
shown appear to bo too small to justify statement that somo typos of
business accounts are moro unstablo than othors. Such differences as




-11-

Table 4
PERCENTAGE CHANGES
IN BUSINESS AND PERSONAL DEMAND DEPOSITS BETWEEN BASE DATE AND SUSPENSION
BY SIZE OF ACCOUNT
67 Sample Banks
Size of Deposit on Base Date
Business
Less than $500

Personal

>11.1

-13. A

500

999

-19.9

-38.9

1,000

2,499

-27.6

-46.4

2,500

4,999

-36.6

-53.8

5,000

9,999

-40.3

-59.2

10,000

24,999

-50.0

-62.5

25,000

49,999

-53.0

50,000

99,999

-60.4

100,000

and over

-66.7

Total

-48.0




-70.8

-42.6

-12-

Table 5
PERCENTAGE CHANGES
IN DEMAND DEPOSIT BALANCES BETWEEN BASE DATE AND DATE OF SUSPENSION
BY TYPE OF BUSINESS
Accounts of all sizes

Type of business

All business demand
deposits

9 banks
67
suspended
sample
before
banks June 30, 1931

-48,0

Manufacturing and
mining
-51.1
Building and construction
-57,8
Transportation, public
utilities, etc.
-44.3
Automobile distribution and related
-53.6
services
-40.9
Trade and service
-50f3
Financial
Other, including
agriculture




44 banks
14 banks
suspended
suspended
after
between
December 31, 1931
June 30, and
December 31, 1931

-45.4

-38.9

-50.6

-47.2

-37,4

-54.9

-58.8

-53.3

-59.2

-49.7

-28.4

-43.4

-54.3
-34.0
-44.8

-23.0
-31.6
-55.6

-57,4
-44.9
-50.1

-13-

Table 6
PERCENTAGE CHANGES
IN DEMAND DEPOSIT BALANCES BETWEEN BASE DATE AND DATE OF SUSPENSION
BY TYPE OF BUSINESS
Accounts of less than $5,000

Type of business

All business demand
deposits

9 banks
67
suspended
sample
before
banks June 30, 1931

-23.8

Manufacturing and
mining
Building and construction
-29.7
Transportation, public
utilities, etc.
+15.6
Automobile distribution and related
services
-39.4
Trade and service
-28.8
Financial
-15.2
Other, including
agriculture




-8.7

44 banks
14 banks
suspended
suspended
between
after
June 30, and
December 31, 1931
December 31, 1931
-10.9

-29.8

-60.4

+18.7

-31.5

+30.9

-6.0

+17,3

-21.8
-15.4
-30.0

-8.8
-16.0
-2.1

-47.8
-34.7
-14.5

+54.1

-14-

Table 7
PERCENTAGE CHANGES
IN DEMAND DEPOSIT BALANCES BETWEEN BASE DATE AND DATE OF SUSPENSION
BY TYPE OF BUSINESS
Accounts of #5,000 and over

Type of business

All business demand
deposits
Manufacturing end
mining
Building and construction
Transportation, public
utilities, etc.
Automobile distribution and related
services
Trade and service
Financial
Other, including
agriculture




9 banks
67
suspended
sample
before
banks June 30, 1931

-55.7

-54.0

14 banks
44 banks
suspended
suspended
after
between
December 31, 1931
June 30, and
December 31, 1931
-49.4

-57.5

•57.5
-68.7

-57.6

-67.4

-70.8

-48.2

-51.7

-31.6

-48.1

-66.1
-49.4
-59.0

-76.1
-45.2
-49.1

-46.8
-42.5
-66.9

-65.7
-52.2
-59.1

-76.8

-15-

exist become loss as the number of banks considered is enlarged. Moreover, no single business class consistently outranks other classes in
the percentage of its "normal11 balance withdrawn prior to suspension.
Chart 1 compares the variations in presusponsion reductions of doposits of different sizes and those of different types of business. Tho
data plotted in tho bar diagrams on tho left of this chart were presented
in Table 6, p. 181f in the March 1939 Federal Resorvo Bulletin.. Tho diagrams on the right aro plotted from figures presented in Table 5. Tho
bars on the right have been ranked in accordance with the severity of tho
deposit reductions of different typos of businoss holders when all banks
and sizes of accounts aro included. The summary bar preceding tho size
of account diagrams is based on the percentage reductions in total demand
deposits; tho bar preceding tho typo of business diagrams is basod on
total businoss demand deposits; both sets of basic figures exclude interbank deposits.
The chart illustrates tho marked contrast both in tho extent and the
consistency of variation in deposit behavior. The diagrams measuring
variations in pre suspension reductions in deposits by size of account exhibit a clearly discernible trond of tho porcontago reduction to incroaso
as the size of tho account becomes greater .2;/ This trend becomos more reg-

1f The figures for classes of accounts whoro increases in balances aro
shown because of technical reasons aro not charted. For a fuller
explanation soe March 1939 Foderal Rosorve Bulletin, p. 182•




-16-

ular as the number of banks oonsidorod is increased.
Business doposits, when classified by typos of business, show no such
distinct variation. Tho arbitrary ranking shown by tho bars based on data
derived from all the banks in the sample is not followed by tho data
derived from any of the separate groups of banks, classified according to
date of suspension. It is noteworthy also that the extent of tho divergence
between types of business decreases markedly as the number of banks in the
groups considered increases.