Federal Reserve Bank of Cleveland
Working Papers (Old Series)
How Did Pre-Fed Banking Panics End?
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.
Cite this item
Ellis W. Tallman & Gary Gorton, How Did Pre-Fed Banking Panics End?, Federal Reserve Bank of Cleveland, Working Papers (Old Series) 1603, 14 Jan 2016.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
Keywords: Financial crisis; bank runs; banking panic; clearing house; bank-specific information; currency premium
This item with handle RePEc:fip:fedcwp:1603
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