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Working Paper
Liquidity creation without a lender of last resort: clearinghouse loan certificates in the Banking Panic of 1907
We employ a new data set comprised of disaggregate figures on clearinghouse loan certificate issues in New York City to document how the dominant national banks were crucial providers of temporary liquidity during the Panic of 1907. Clearinghouse loan certificates were essentially "bridge loans" arranged between clearinghouse members that enabled and were issued in anticipation of monetary gold imports, which took a few weeks to arrive. The large New York City national banks acted as private liquidity providers by requesting (and the New York clearinghouse issuing) a volume of clearinghouse ...
Working Paper
Liquidity creation without a lender of last resort: clearing house loan certificates in the Banking Panic of 1907
We employ a new data set comprised of disaggregate figures on clearing house loan certificate issues in New York City to document how the dominant national banks were crucial providers of temporary liquidity during the Panic of 1907. Clearing house loan certificates were essentially ?bridge loans? arranged between clearing house members. They enabled and were issued in anticipation of gold imports, which took a few weeks to arrive. The large, New York City national banks acted as private liquidity providers by requesting (and the New York Clearing House issuing) a volume of clearing house ...
Working Paper
Close but not a central bank: The New York Clearing House and issues of clearing house loan certificates
The paper examines the New York Clearing House (NYCH) as a lender of last resort by looking at clearing-house-loan-certificate borrowing during five banking panics of the National Banking Era (1863?1913). In that system, adequate aggregate liquidity provision was passive and dependent upon member bank borrowing. We document bank borrowing behavior using bank-level data for clearing-house loan certifi cates issued to NYCH member banks. The historical record reveals that the large New York City banks behaved in ways that resembled those of a central bank in 1884 and in 1890, but less so in the ...
Working Paper
Outside Lending in the NYC Call Loan Market
Before the Panic of 1907 the large New York City banks were able to maintain the call loan market?s liquidity during panics, but the rise in outside lending by trust companies and interior banks in the decade leading up the panic weakened the influence of the large banks. Creating a reliable source of liquidity and reserves external to the financial market like a central bank became obvious after the panic. The lack of a lender of last resort for investment banks engaged in bank-like activities during the crisis of 2007-09 revealed a similar need for an external liquidity source.
Working Paper
The Transmission of the Financial Crisis in 1907: An Empirical Investigation
Using an extensive high-frequency data set, we investigate the transmission of financial crisis specifically focusing on the Panic of 1907, the final severe panic of the National Banking Era (1863-1913). We trace the transmission of the crisis from New York City trust companies to the New York City national banks through direct and indirect interconnections. Trust companies held cash balances at national banks, and these balances were liquidated as trust companies suffered depositor runs. Secondly, trust companies and national banks were notable creditors to the New York Stock Exchange; when ...
Journal Article
Private sector responses to the Panic of 1907: a comparison of New York and Chicago
The trend toward greater provision of payments services by nonbank providers raises a question for regulators: What if these nonbank institutions suffer unfavorable balances or experience a run? The authors of this article look to the Panic of 1907 as an example of how private market participants, in the absence of government institutions, react to a crisis in their industry. They suggest that New York's and Chicago's contrasting experiences during the panic may provide useful lessons for both regulators and market participants. ; The article compares responses to the panic by bank ...
Journal Article
Diversity and balanced growth: Tennessee stays on track
Working Paper
The call loan market in the U.S. financial system prior to the Federal Reserve System
The call loan market in New York City played a central role in funding the expansion of economic growth and capital investment in the United States in the late 1800s and early 1900s. Changes in the identity of the intermediaries providing those funds help explain why the movement for the establishment of a central bank in the United States took hold only after the panic of 1907. The growing significance of nonclearinghouse creditors to the call money market diluted the relative financial influence of the New York City bankers and compromised the apparent ?coinsurance? arrangement between ...
Working Paper
Why didn't the United States establish a central bank until after the panic of 1907?
Monetary historians conventionally trace the establishment of the Federal Reserve System in 1913 to the turbulence of the Panic of 1907. But why did the successful movement for creating a U.S. central bank follow the Panic of 1907 and not any earlier National Banking Era panic? The 1907 panic displayed a less severe output contraction than other national banking era panics, and national bank deposit and loan data suggest only a limited impairment to intermediation through these institutions. ; We argue that the Panic of 1907 was substantially different from earlier National Banking Era ...
Journal Article
Lessons from the panic of 1907