Financial Development, Overbanking, and Bank Failures During the Great Depression : New Evidence From Italy

This paper examines the link between overbanking and financial distress during the interwar period in Europe, focusing on Italy as a case study. Using regression analysis and a systematic review of coeval literature, it shows that banks experiencing distress had opened scores of branches, had higher expenses, engaged in riskier activities, and operated in areas with harsher competition. The 1920s in Italy saw a profound transformation of the banking system, with extensive branch expansion and cut-throat competition for deposits. This paper argues that this structural change made it more fragile when the international crisis hit, and available evidence on other European countries suggest that Italy was not an isolated case. The study contributes to the literature on banking crises during the Great Depression, and to that on the effects of banking competition on financial stability