How banks boomed during World War I and then busted due to agricultural price shock post World War I

Matthew S. Jaremski and David C. Wheelock in this paper show evidence of American banks boom and bust:

Bank lending booms and asset price booms are often intertwined. Although possibly triggered by a fundamental shock, rising asset prices can stimulate lending that pushes asset prices higher, leading to more lending, and so on. Such a dynamic seems to have characterized the agricultural
land boom surrounding World War I.

This paper examines i) how banks responded to the boom and were affected by the bust; ii) how various banking regulations and policies influenced those
effects; and iii) how bank closures contributed to falling land prices in the bust.

We find that rising crop prices encouraged bank entry and balance sheet expansion in agricultural counties (with new banks accounting disproportionately for growth in lending and banking system risk). State deposit insurance systems amplified the impact of rising crop prices on bank portfolios, while higher minimum capital requirements dampened the effects.

When farmland prices collapsed, banks that had responded most aggressively to the asset boom had a higher probability of closing, and counties with more bank closures experienced larger declines in land prices.

Just replace the  farmland with real estate, infrastructure and so on. One will get a similar picture of most banking crises….Yet we are surprised each time…

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