Working Paper

Causes of bank suspensions in the panic of 1893

Abstract: There are two competing theories explaining bank panics. One argues that panics are driven by real shocks, asymmetric information, and concerns about insolvency. The other theory argues that bank runs are self-fulfilling, driven by illiquidity and the beliefs of depositors. This paper tests predictions of these two theories using information uniquely available for the Crisis of 1893. The results suggest that real economic shocks were important determinants of the location of panics at the national level, however at the local level, both insolvency and illiquidity were important as triggers of bank panics.

Keywords: Banks and banking - History; Bank failures;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2002

Number: 2002-11