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Working Paper
Banking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock
How do banks respond to asset booms? This paper examines i) how U.S. banks responded to the World War I farmland boom; ii) the impact of regulation; and iii) how bank closures exacerbated the post-war bust. The boom encouraged new bank formation and balance sheet expansion (especially by new banks). Deposit insurance amplified the impact of rising crop prices on bank portfolios, while higher minimum capital requirements dampened the effects. Banks that responded most aggressively to the asset boom had a higher probability of closing in the bust, and counties with more bank closures ...
Working Paper
Theodore Roosevelt, the Election of 1912, and the Founding of the Federal Reserve
This paper examines how the election of 1912 changed the makeup of Congress and led to the Federal Reserve Act. The decision of Theodore Roosevelt and other Progressives to run as third-party candidates split the Republican Party and enabled Democrats to capture the White House and Congress. We show that the election produced a less polarized Congress and that newly-elected members were more likely to support the act. Absent their interparty split, Republicans would likely have held the White House and Congress, and any legislation to establish a central bank would have been unlikely or ...
Working Paper
Interbank Networks and the Interregional Transmission of Financial Crises: Evidence from the Panic of 1907
This paper provides quantitative evidence on the interbank network’s role in transmitting the Panic of 1907 and ensuing recession across the United States. Originating in a few New York City banks and trust companies, the panic led to payment suspensions and emergency currency issuance in many cities. Data on the universe of correspondent relationships show that i) suspensions were more likely in cities whose banks had closer ties to banks at the center of the panic, ii) banks with such links were more likely to close, and iii) banks responded to the panic by rearranging their correspondent ...
Working Paper
Interbank Networks and the Interregional Transmission of Financial Crises: Evidence from the Panic of 1907
This paper provides quantitative evidence on interbank transmission of financial distress in the Panic of 1907 and ensuing recession. Originating in New York City, the panic led to payment suspensions and emergency currency issuance in many cities. Data on the universe of interbank connections show that i) suspension was more likely in cities whose banks had closer ties to banks at the center of the panic, ii) banks with such links were more likely to close in the panic and recession, and iii) banks responded to the panic by rearranging their correspondent relationships, with implications for ...
Working Paper
Banker Preferences, Interbank Connections, and the Enduring Structure of the Federal Reserve System
Established by a three person committee in 1914, the structure of the Federal Reserve System has remained essentially unchanged ever since, despite criticism at the time and over ensuing decades. This paper examines the original selection of cities for Reserve Banks and branches, and placement of district boundaries. We show that each aspect of the Fed?s structure reflected the preferences of national banks, including adjustments to district boundaries after 1914. Further, using newly-collected data on interbank connections, we find that banker preferences mirrored established correspondent ...
Working Paper
Interbank Networks and the Interregional Transmission of Financial Crises: Evidence from the Panic of 1907
This paper provides quantitative evidence on interbank transmission of financial distress in the Panic of 1907 and ensuing recession. Originating in New York City, the panic led to payment suspensions and emergency currency issuance in many cities. Data on the universe of interbank connections show that i) suspension was more likely in cities whose banks had closer ties to banks at the center of the panic, ii) banks with such links were more likely to close in the panic and recession, and iii) banks responded to the panic by rearranging their correspondent relationships, with implications for ...
Working Paper
Interbank Connections, Contagion and Bank Distress in the Great Depression
Liquidity shocks transmitted through interbank connections contributed to bank distress during the Great Depression. New data on interbank connections reveal that banks were much more likely to close when their correspondents closed. Further, after the Federal Reserve was established, banks? management of cash and capital buffers was less responsive to network risk, suggesting that banks expected the Fed to reduce network risk. Because the Fed?s presence removed the incentives for the most systemically important banks to maintain capital and cash buffers that had protected against liquidity ...
Working Paper
Theodore Roosevelt, the Election of 1912, and the Founding of the Federal Reserve
This paper examines how the election of 1912 changed the makeup of Congress and led to the Federal Reserve Act. The decision of Theodore Roosevelt and other Progressives to run as third-party candidates split the Republican Party and enabled Democrats to capture the White House and Congress. We show that the election produced a less polarized Congress and that new members were more likely to support the Act. Absent the Republican split, Republicans would likely have held the White House and Congress, and enactment of legislation to establish a central bank would have been unlikely or ...
Working Paper
Interbank Networks and the Interregional Transmission of Financial Crises: Evidence from the Panic of 1907
This paper provides quantitative evidence on the interbank network’s role in transmitting the Panic of 1907 across the United States. Originating in a few New York City banks and trust companies, the panic led to payment suspensions and emergency currency issuance in many cities. Data on the universe of correspondent relationships shows that i) suspensions were more likely in cities whose banks had closer ties to banks at the center of the panic, ii) banks with such links were more likely to close, and iii) banks responded to the panic by rearranging their correspondent relationships, with ...
Working Paper
The Founding of the Federal Reserve, the Great Depression and the Evolution of the U.S. Interbank Network
Financial network structure is an important determinant of systemic risk. This paper examines how the U.S. interbank network evolved over a long and important period that included two key events: the founding of the Federal Reserve and the Great Depression. Banks established connections to correspondents that joined the Federal Reserve in cities with Fed offices, initially reducing overall network concentration. The network became even more focused on Fed cities during the Depression, as survival rates were higher for banks with more existing connections to Fed cities, and as survivors ...