Working Paper

How Did Pre-Fed Banking Panics End?


Abstract: How did pre-Fed banking crises end? How did depositors? beliefs change? During the National Banking Era, 1863-1914, banks responded to the severe panics by suspending convertibility; that is, they refused to exchange cash for their liabilities (checking accounts). At the start of the suspension period, the private clearing houses cut off bank-specific information. Member banks were legally united into a single entity by the issuance of emergency loan certificates, a joint liability. A new market for certified checks opened, pricing the risk of clearing house failure. Certified checks traded at a discount to cash (a currency premium) in a market that opened during the suspension period. Confidence was restored when the currency premium reached zero.

Keywords: bank runs; clearing house; bank-specific information; Financial crisis; currency premium; banking panic;

JEL Classification: E44; E58; N21;

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers (Old Series)

Publication Date: 2016-01-14

Number: 1603

Pages: 93 pages