Did “the railroads” cause US banks to fail in the 1930s?

A combination of archival evidence, panel data, and time series analysis shows that the decline of railways played a major role in US bank failures of the 1930s. Possible failure mechanisms included banks holding: (1) obligations from financially distressed railways and (2) any form of railway bond which lost value due to a collapse. Twenty Massachusetts state banks that failed between 1931 and 1933 incurred average losses in the railway bond portfolios of their savings departments of 40 per cent, which was significantly greater than average losses of surviving banks (29 per cent). Time series analysis shows that long-term debts of bankrupt US railways along with changes in bond prices for railways and industrials can significantly explain monthly liabilities of failed banks. The bankruptcies of three massive railways within an eight-month period potentially explain the high amount of bank assets lost during Roosevelt's bank holiday of March 1933.